Citizens (CFG) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 16, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Bruce Van Saun
• Chief Financial Officer — Aunoy Banerjee
• Head of Consumer Banking — Brendan Coughlin
• Head of Commercial Banking — Theodore Swimmer

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TAKEAWAYS

• Earnings Per Share (EPS) -- $1.13, up 47% year over year, reflecting substantial earnings growth in a seasonally soft quarter.
• Return on Tangible Common Equity (ROTCE) -- 12.2%, with management maintaining a target of 16%-18% by year-end 2027.
• Net Interest Income (NII) -- Increased 1.6% over the prior quarter, driven by net interest margin expansion and growth in interest-earning assets.
• Net Interest Margin (NIM) -- Expanded by 7 basis points sequentially to 3.14%, attributed primarily to benefits from terminated swaps and noncore runoff.
• Operating Leverage -- Positive 7% year over year, supported by revenue gains and controlled expense growth.
• Capital Position (CET1) -- 10.5% at quarter-end, with a year-to-date increase projected to 10.5%-10.6% by next quarter including $225 million in share repurchases.
• Allowance for Loan Losses (ACL) -- Holding at 1.52%, reflecting a portfolio mix shift and management's view of stable credit conditions.
• Annualized Fee Revenue -- Noninterest income rose 11% year over year, with capital markets fees up 34% and record first-quarter performance reported.
• Deposits -- Average deposits up 1% quarter-on-quarter ($1.5 billion), led by Private Bank growth to $16.6 billion; year-over-year average balances up $8.6 billion or 5%.
• Loan Growth -- Average and period-end loans rose 1% sequentially, with gains in both Consumer and Commercial Banking; Private Bank loans increased $600 million this quarter.
• Noninterest-Bearing Deposits -- Increased 3% sequentially and 11% year over year; now comprising 23% of the deposit book.
• Net Charge-Offs -- Down to 39 basis points from 43 basis points in the prior quarter, indicating continued improvement in credit performance.
• Expense Growth -- Operating expenses rose 2.6% quarter-on-quarter, mostly from salary seasonality and $6 million ramp-up in "Reimagine the Bank" investments.
• Shareholder Returns -- $500 million returned in the quarter ($198 million dividends, $300 million share repurchases); second quarter share repurchases planned at $225 million.
• Private Bank Profitability -- The unit generated $0.11 EPS contribution, with ROE exceeding 25% and client assets reaching $10.1 billion.
• Strategic Initiatives -- The "Reimagine the Bank" program reaffirmed $450 million P&L benefit target by 2028, with $100 million annualized run-rate benefit anticipated exiting 2026.
• Capital Markets Ranking -- Ranked fourth by volume for middle market sponsors bookrunner deals in both the quarter and past 12 months.
• 2026 Guidance -- Q2 NII expected to rise 3%-4%; noninterest income to grow 3%-5%; expenses projected stable to up 1% amid ongoing strategic investment.
• Outlook for Regulatory Capital Relief -- Bruce Van Saun stated, "this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points."

SUMMARY

Citizens Financial Group (NYSE:CFG) reported rapid EPS and ROTCE growth as fee income, NII, and operating leverage accelerated despite a volatile macro environment. The Private Bank became a key contributor to profitability, showing consistent deposit and loan expansion, while strategic investments in technology and new branch markets underpinned management’s confidence in achieving long-term growth targets. Executives emphasized disciplined credit risk, robust capital ratios, and the scalability of platforms such as the Private Bank and “Reimagine the Bank,” indicating sustained momentum across core segments.

• Management cited "record first quarter for us in capital markets fees," reflecting the ability to sustain strong pipelines and transaction momentum even with deal delays shifting activity into subsequent quarters.
• Executives expressed satisfaction with regulatory reform prospects, expecting stress test results to more accurately reflect the balance sheet and underlying risk, potentially lowering future capital requirements.
• Segment-specific commentary revealed robust growth in HELOC and mortgage originations, and ongoing market share gains in retail banking, attributed to both elevated customer relationship strength and technology investments.
• The deposit mix remained favorable versus peers, with consumer deposits at 64% and sustained high growth in low-cost deposit categories supporting margin resilience.
• Ongoing expansion of the New York Metro initiative and branch optimization indicate a strategy focused on market densification, not geographic diversification.
• AI deployment in both customer service and software engineering is cited as a key driver for realization of expense reduction and productivity benefits, with tangible outcomes already visible in cycle times and call volumes.
• Cost discipline was reinforced by front-loaded investment in personnel and technology, with operating leverage anticipated to remain positive as efficiencies scale in the second half.

INDUSTRY GLOSSARY

• PBO (Private Banking Office): Specialized office location for serving high-net-worth clients in the Private Bank segment.
• NBFI (Non-Bank Financial Institution): Entities such as private equity, hedge funds, or alternative asset managers served through corporate banking lending, deposits, and capital markets services.
• BSO (Banking Services Optimization): Refers to Citizens' approach for optimizing and deepening client relationships through cross-sell and holistic service strategies, particularly in the commercial segment.
• DDA (Demand Deposit Account): Standard checking account with funds payable on demand, often used as a measurement of low-cost deposit mix.
• SCB (Stress Capital Buffer): Capital buffer set by regulators based on stress test results, dictating minimum capital requirements for large U.S. banks.

Full Conference Call Transcript

Bruce Van Saun: Okay. Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We're pleased to start the year off strong, notwithstanding geopolitical tensions and uncertainty in the macro environment. We delivered good financial performance in a seasonally soft quarter with year-over-year EPS growth of 47%, positive operating leverage of 7% and NIM expansion of 24 basis points. Our balance sheet position continues to be robust with CET1 at 10.5% and our allowance for loan losses at 1.52%. Credit trends continue to be favorable across our portfolios, and we continue our loan mix shift towards deeper relationships with lower credit risk. Execution on our strategic initiatives continues to track well.

The Private Bank and Wealth business showed further growth in customers, balance sheet and profitability, now accounting for roughly 10% of our pretax income while delivering an ROE in excess of 25%. During the quarter, we opened 3 more PBOs, bringing the total to 9. Reimagine the bank is off to a solid start, and we reaffirm our $450 million P&L target by the end of 2028. We estimate about $100 million in 2026 exit run rate benefits at this point. Our positioning with private capital continues to be excellent. We anticipate a strong year for private equity sponsor activity, which should provide a balance sheet and fee opportunities for us.

We've reviewed all of our lending to private credit vehicles at a granular level and we feel good about our credit exposure. The New York City Metro initiative also continues to show further progress. We are growing across retail, small business and middle market. We are in the process of analyzing Citizens' existing branch footprint for net new investment and optimization with New York City likely to see growth in branches in coming years. We should have more details to share with you on this midyear. We're also focused on an initiative we call One Citizens, which is systematically finding ways to work across the enterprise to deliver valuable solutions to our customers.

Now that we have stood up the private bank and continued the build-out of our corporate bank, we have the capacity to provide both personal and corporate services to successful business owners investors and entrepreneurs. We will report more on this as the year progresses, but we're already gaining real traction. As we look ahead to the second quarter and the full year, we remain cautiously optimistic that we'll be able to navigate through external challenges and still deliver the strong results we projected coming into this year. So far, markets have behaved rationally despite the war with equity markets holding in and credit spreads only slightly wider.

We intend to stay on our investment plan for the year unless the macro takes a meaningful turn for the worst. We're pleased with the regulatory changes we see coming from Washington, D.C., and we look forward to the upcoming CCAR stress test results, which we're hopeful will give a more accurate result for citizens than what we've seen in the past. So to sum up, a good start, well positioned with a great strategy and a great team and optimistic for a strong 2026. With that, I'll turn it over to Aunoy for the financial details. Aunoy?

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

The Private Bank continued to grow its profitability, contributing $0.11 to EPS, up from $0.10 in the prior quarter as the business delivered another very strong quarter of deposit growth. Now let me walk through the first quarter results in more detail, starting with net interest income on Slide 5. Net interest income was up 1.6% linked quarter, driven by the benefit of an expanded net interest margin and higher interest-earning assets, including strong loan growth which more than offset the day count impact of about $22 million.

As you see from the NIM back at the bottom of the slide, our margin improved 7 basis points to 3.14%, driven primarily by the benefits of the reduced drag from terminated swaps and noncore runoff with a 5 basis point of combined impact. The fixed rate asset repricing benefit of 1 basis point. And lastly, the net impact of 1 basis point related to improved funding cost and mix, largely offset by lower acetyls. We continue to do a good job optimizing deposits in a competitive environment. Our interest-bearing deposit costs were down 16 basis points and total deposit costs were down 12 basis points.

The cumulative interest-bearing deposit beta improved to 50% as we benefited from the repricing after the last rate cut. Even with the Fed now expected to hold steady in '26, we are still projecting a high 40s beta for the cycle. Moving to Slide 6. Noninterest income is up 11% year-over-year but down 2% linked quarter. As I mentioned, this was our strongest first quarter fee result ever, notwithstanding heightened geopolitical tensions and an increase in market volatility. Capital markets performance demonstrated the strength and diversity of the franchise with fees up 34% year-over-year and down 4% compared with the strong fourth quarter. M&A delivered a good result in the quarter with our pipeline is strong and continues to build.

Bond underwriting was up nicely from the prior quarter. Our equity underwriting performance was stable linked quarter and up significantly year-over-year. Loan syndications were lower given the market volatility. We continue to maintain strong market share ranking fourth in the middle market sponsors book runner deals by volume. This is for both the first quarter and over the last 12 months. Our deal pipelines across M&A, debt and equity capital markets continue to build notwithstanding the unsettled environment. Our Global Markets business was up $10 million linked quarter with increased client hedging activity in interest rate products and energy-related commodities. Our wealth business continues to build with progress in the private bank and strength in our retail network.

Wealth fees are up 2% linked quarter and 23% year-over-year. These results reflect higher advisory fees with continued positive momentum in fee-based AUM growth year-over-year. The fourth quarter results reflect positive net inflows partially offset by market impacts on AUM. Mortgage was down 19% linked quarter given a lower MSR valuation, partially offset by slightly higher production and servicing fees. On Slide 7, Expenses were managed tightly, up 2.6% linked quarter, largely reflecting the usual seasonality in salaries and benefits as well as about $6 million of implementation costs to ramp up the reimagined the bank program. On Slide 8, average and period-end loans were up 1% linked quarter. We saw solid loan growth across each of the businesses.

Commercial loans, excluding the private bank, were up 1% on a spot basis. This was driven by net new money originations at higher commercial line utilization. This was partially offset by CRE paydowns. We continue to reduce commercial banking CRE balances, which were down about 4% this quarter and 16% year-over-year. The Private Bank delivered good loan growth again this quarter with period-end lows up about $600 million, driven by growth in multifamily and residential mortgage. Growth in retail loans ex noncore on a spot basis was about $300 million, led by real estate secured categories. This was offset by noncore auto portfolio run-up of roughly $500 million for the quarter.

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

Our total noninterest-bearing and low-cost deposit mix was steady at 43%, and our consumer deposits are 64% of our total deposits. This compares to a peer average of about 56%. Moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 39 basis points, down from 43 basis points in the prior quarter. Nonaccrual loans are down modestly linked quarter, reflecting a decrease in commercial, largely driven by C&I, which was partially offset by an increase in market. Turning to Slide 12. The allowance was essentially stable this quarter with ACL coverage ratios of 1.52%.

This reflects the continued improvement in our portfolio mix with noncore runoff, the reduction in CRE and strong originations of lower loss content C&I, residential real estate secured and private loans. The economic forecast supporting the allowance contemplates a mild recession with a slight deterioration compared with the last quarter, reflecting the potential impact of higher energy prices. As we look broadly across the portfolio, the credit outlook remains positive though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.5%. We returned about $500 million to shareholders in the first quarter with $198 million in common dividends and $300 million of share repurchases.

Moving to Slide 14. The private bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $16.6 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding about $600 million of loan at a healthy spread of 4% over deposit costs to end the quarter at $7.7 billion of loans. We ended the quarter with $10.1 billion of total client assets with modest net inflows partially offset by market impacts. We have more runway here as we plan to continue adding top quality teams in key geographies.

We opened offices in Malmo Park and Laurel Village in the first quarter, and we expect to open at least 2 more offices this year in Weston Beach, Florida and Greenwich, Connecticut. Moving to Slide 15. Our reimagined the bank program is off to a great start. The objective is to position Citizens for long-term success by embracing a host of new innovative technologies across the bank and simplifying our business model. which will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. The program is well underway with work commencing on several key work streams.

For example, on the technology front, we are leveraging AI to assist in writing code and expect to have material productivity improvements in software development, cutting down cycle times. We are also using AI to improve our interactions with customers, which we expect will materially cut call volumes and improve the overall customer experience. We expect to exist 2026 with an annualized run rate of about $100 million of pretax benefit. Now moving to Slide 16. We provide our outlook for the second quarter. We expect net interest income to be up in the range of 3% to 4%, driven by continued expansion in net interest margin and earning asset growth.

Noninterest income is expected to be up 3% to 5%, led by capital markets with some risk if market volatility moves higher. Other fee categories such as FX and derivatives, wealth and card should also provide lift for the quarter. We are projecting expenses to be stable to up 1% and incorporating a step-up in implementation costs associated with reimagine the Bank and continued investment in other key business initiatives. We expect expense saves from reimagine the bank to benefit second half expenses. The charge-off level is expected to be stable to down slightly. And we should end the second quarter with CET1 in the range of 10.5% to 10.6%, including share repurchases of about $225 million.

In addition, our full year outlook remains broadly in line with the guide we provided in January, which contemplated a pickup in business activity over the course of the year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of pending our net interest margin is an important driver, and we continue to project NIM to be in the range of [ 322% to 328% ] in 4Q '26. And in the range of [ 330% to 350% ] in 4Q '27. Slide 17 provides incremental details on our net interest margin progression to the end of '27.

This combined with the impact of successful execution of our strategic initiatives and normalizing credit should drive ROI to our target range. To wrap up, we're off to a good start to with results highlighted by strong growth, net interest income and good fee results in a seasonally soft quarter. Our balance sheet is strong and continue to drive forward our strategic initiatives with strong momentum in growing the private bank and in our reimagine the bank program. With that, I will hand it back over to Bruce.

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

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

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

Bruce Van Saun: Yes. Scott, let me -- it's Bruce. I'll take it first and then hand over to Ted to provide more color. But I would say all things considered. We're pleased with the performance of the capital markets franchise in an environment that had increased volatility and lots of uncertainty, particularly in March once the war kicked in. But we have good diversification across our different services in capital markets. So we have M&A, we have bond underwriting, equity underwriting and syndicated loans. I think that diversity helped us print a good quarter. There was some leakage, I would say, from March that's geared up to go in April, which now that we have more optimistic tone to the market.

We're actually starting to see that come through. So we may be in a situation where our pipelines are very well. We're very optimistic given kind of the strength of the franchise the likelihood that people want to transact. But if there's this external volatility ebbs and flows, you could see people pull to the sidelines, wait for the opportune time, for example, to go to market. And hopefully that cleans up. We're certainly not taking our numbers down for the year. In fact, we feel quite good about that given the level of activity that we see and the pipeline strength that we have. So Ted, over to you.

Theodore Swimmer: Building on what Bruce just said, we've seen -- we took a couple of transactions in March that we would have launched into the market and pushed them into April, just given the volatility in the overall markets. But during that whole period of time, we continue to sign up new transactions. And I think what's really exciting about the transactions that we're signing up based on the investments we made in Corporate Finance and industry specialization we now are doing more complex transactions and getting signed up on more complex transactions than we ever had before and feel very good about what that pipe -- what those transactions are and how the pipeline is building.

And to more to what Bruce just said, the deals that got postponed in March, especially this week, we've seen them back into the market. We are launching several transactions and part of several transactions that were postponed in March that are getting very good [indiscernible] now in April. So we continue to feel very optimistic about the pipeline, especially on the M&A side. And during this whole period of turmoil, we really actually saw a pickup in new mandates, especially on the M&A side of the business.

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

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

Bruce Van Saun: Yes, I'll start again and flip to Ted. But I would say we've been very disciplined in terms of the kind of counterparties that we select usually they're often a private equity sponsor that's migrated to a broader kind of business model that picks up private credit, and they're moving to be more of an alternative asset manager. And so we've helped them grow and get into this business and provide leverage to many of those names. So client selection is always key and then making sure we have the right structures in place so that we're structurally protected from any issues that could arise in the portfolios.

And so we've gone through and looked at kind of our exposure and kind of the broad portfolio, looking at all the underlying factors who has liquidity gates for retail investors who's got software exposure at the end of the day, feel very, very confident that we're structurally well protected from a credit loss standpoint.

And I think even though this is in the headlines and there's concerns about private credit, the asset class, if you want to call it that, is here to stay, and they provide a certain amount of leverage and deal structures that exceeds what banks have historically been willing to play, and there's certainly a lot of institutional demand folks or private credit managers are continuing to raise new money. So I think we'll just grow selectively with the market. as we have in the past, but we don't see this turning around and being something that starts to shrink. It's just going to grow.

And I think every player in the market will be more selective, and we'll continue to be selective, but we would expect this to be an area that we stay committed to. Ted?

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

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

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

Bruce Van Saun: Yes. So we feel really good about our ability to deliver the kind of NII and the NIM that we gave in the beginning of the year guide. So -- but as you say, the environment is going to have an impact to some degree and a bit of a pause by the Fed. So a little higher rate scenario that we came into the year given asset sensitivity is modestly positive for us. And then a little slightly steeper yield curve, we had assumed 425 to 450 is the 10-year, and we're kind of in that zone.

But -- to the extent there's -- that moves up and there's a little more steepening, that's also potentially positive to the outlook. But I wouldn't say it's a game changer. These are kind of marginal benefits that give us even more conviction that we can deliver to the numbers or slightly ahead of the numbers. With that, Aunoy, I'll turn it over to you if you want to add any color?

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

So we feel confident of getting there.

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

Bruce Van Saun: Okay. Sure. So it's still early days, and we're going through a comment period. But based on what we see now, this could deliver kind of a 10%-ish reduction in risk-weighted assets, which would translate to in excess of 100 basis points, call it, 110 basis points or so of CET1 improvement. -- the AOCI phase-in, if it happened right today, it would basically mitigate that. But as it phases in over time, some of that drag will dissipate. And so we would expect to be kind of at least 30 basis points to the good net-net, even with AOCI, maybe as much as 50. So we'll just have to see how the rate curve plays out from here.

But anyway, it's a good problem to have, and it's probably early days to say kind of what we'll plan to do with that. There'll be a lot of considerations what is stakeholders' expectations, the market, the rating agencies, the regulators, et cetera. But anyway, it's a good issue for us to think about. The other thing is on this ERBA. There's a modest improvement even over the revised standard approach but there's a lot of work that goes into that. So you'd have to step back and decide do you want to do it?

One of the things that sticks out as a difference between the 2 approaches is kind of the lesser risk weights under [indiscernible] for investment-grade credit. And we'll have to see if that gets imported into the revised standard approach, so there's no difference or whether there is a difference that might pull you towards wanting to move over and do ERPA approach. So Aunoy, anything to add?

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

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

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

Bruce Van Saun: Yes, I'd say that the really impressive thing, Ryan, is that we're getting the growth in each of the 3 main business areas. So private bank being kind of that start-up phase is growing their book nicely and consistently. And I think that leans a little bit more on the consumer side and multifamily side, that should continue. We had actually low line utilization with their client base, which should bounce back. And so we see private bank contributing. I think in commercial as well, we have the growth in NBFI, but also starting to see a little deal activity pick up across the corporate book, and we have our expansion [indiscernible] don't forget.

So we brought banking teams into Florida and California and beefed up our New York Metro team. So that's contributing a bit. And then in the consumer bank, we've been kind of a rock star and HELOCs and also consistent growth in mortgage. So it's nice to see it's pretty broad-based.

And then some of the drags of the things that we've had in the past, such as kind of the rundown of noncore, some of the commercial BSO thin relationship exits and things like that, the CRE kind of getting back to par where we want to be on commercial CRE after the investors acquisition all that is starting to abate a little bit, which allows the inherent growth to shine through. I think I'll ask maybe go to Brendan first for some color on Consumer and Private Bank. And then Ted, I'll ask you for some color on commercial.

Brendan Coughlin: Yes. Thanks, Bruce. Thanks, Ryan. Adding on Bruce, just give you a little more color and data on the retail side of the business. We're up about 4% year-on-year on core loans, heavily driven by HELOC and mortgage Bruce mentioned, you just got the league tables in from 2025. We're the #1 originator in the United States at home equity lending with an incredibly strong risk profile, low LTVs, strong FICO scores, all depository relationship customers. So we're very proud about that, and we expect that to continue. Mortgage originations in this rate environment has obviously been challenged, but prepay speeds slowed too.

So we're seeing net positive growth in mortgage and the balance sheet rotating into higher relationship-based lending fueled by the private bank and the retail bank. With our launch of a new credit card products, we're seeing a 50%-plus growth in new credit card originations. It takes a little bit of time for that to translate into the balance sheet as pain activity gets through, but we should see some modest script in credit card as we hit the back half of the year, too.

So broadly in retail, we expect the growth rate that we're seeing to project forward with a lot of confidence and the mixing of the balance is to get strong with higher return and deeper relationships. The private banking side, we've generally been in the range of about $1 billion in net growth each quarter. We were a little bit lighter than that this quarter with some lower utilization rates on the private equity side. But we that to be temporal. And the underlying originations activity is quite strong.

We're very confident we'll end the year in the range that we gave of $11 billion to $13 billion, which projects back to about that $1 billion in that growth per quarter returning in the private bank. So both retail and private banking, I would just broadly describe as continued steady momentum with what you've seen over the last few quarters. Ted?

Theodore Swimmer: Yes. Thanks, Brendan and Bruce. On the middle market side, we have seen a pickup in utilization over the last 3 months. I think customers are getting -- our customers are getting more comfortable in the economy and overall spending money on CapEx, which has led to a slight increase there on the mid-corporate -- adding on that, what we built out in Florida, New York and California, we're starting to see some real success there with increased loan demand and some increased customer count, which has resulted in higher growth there. On the mid-corporate side, we've reorganized the division a little bit to be more industry focused, less geographic focus.

That has resulted in a nice pickup of new opportunities for us on the mid-corporate side of the business, and that was really [indiscernible] in the first quarter for us with significant growth there. NDFI continues to grow somewhere in the range of 5% a year. There's still good opportunities both on the capital call line, the securitization business and on the lending to the direct funds, and we expect that to continue to go around 5%. And then finally, we have really not seen much pickup in the private equity side of the business. The sponsor business has still been, I would say, flattish year-over-year. So most of our growth has been the traditional mid-corporate and middle market space.

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

Bruce Van Saun: Yes. I'll start and put it to Brendan who's sponsoring and leading that program. But I think that's a really good call out, Ryan, is that the adoption curve, the innovation curve that we're seeing in AI is really -- it's almost mind boggling. It's very significant.

And so I think what we did when we set up the program was we took a very systematic approach to say like here's how we do things today, how would we like to do them in the future, embracing the technology as we have it today, recognizing though that over a 2- to 3-year time frame, there's going to be a lot more innovation and a lot of chance to embrace even better tools. And so maybe that creates a higher level of benefit, maybe that creates an acceleration and maybe it just creates new work streams that we haven't even thought or possible. So it's really a living, breathing program it's dynamic. It will incorporate.

We'll have our telescope out looking at all the new things that are coming down the pike and figuring out how we can incorporate those in. But I'd say one thing to leave you with, though, is that we've been -- we've demonstrated over the years an ability to take innovation and take new approaches to how we're running the bank and put them into a program and deliver real financial benefits. So we won't create a lot of science fair projects and kind of use some of this new technology in ways that actually don't deliver real benefits. That's kind of our mindset as we go through this. So Brendan?

Brendan Coughlin: Yes. Thanks, Ryan. Your question is principally AI, but one point on the non-AI front, you saw from us in the quarter. the remain the bank initiative was principally self-funded by quick wins that were non-AI based. And so we've already got over $30 million in projected vendor saves for the year in the box with an expectation that, that number goes up. We've closed corporate facilities, smaller facilities that's driving savings. So that has offset the investment already. So you're seeing real tangible impact in the program already this early in the year. On the AI front, to say two things.

One is, you're right to point out the risk of speed of execution also is the speed of obsolescence as we put these in place, the idea that the best answer could be different in a quarter is very much front of our mind. So we're architecting all the things that we're building to be even more nimble than you might expect from a tech standpoint in the past. So as new models come up, we can easily plug and play and make sure we're taking advantage of the latest and greatest. So that's very much front of our mind.

We very much have real AI use cases in market today. in the call center, as an example, we've told you we expect to get 50% of the calls out by the end of the period. It's already in pilot. In fact, we expect inside of this calendar year, by the end of the year, we should have 25% of our calls answered by non-humans with the expectation that will ramp in 27% to 50%. That really should hit in the summer and into the early fall. So this is very real. This isn't a back-loaded program all coming in 2028. And the tech space, as an example, we've deployed [indiscernible] to our engineers.

We're already seeing a very material productivity improvement and leverage we're getting on our capital investment and deployment ranging from 30% improvement in productivity that in some tests we've done, it's been a 5 to 10x improvement in productivity. So now we're working on scaling it and engineering it for real scale. So we are moving very, very fast. We're keeping up with the pace and it's live and in production and our confidence is building.

Operator: [indiscernible] UBS.

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

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

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

Aunoy Banerjee: Erika, it's Aunoy here. We were quite pleased with our deposit performance this quarter. And as we saw actually good noninterest-bearing deposit growth Obviously, we have a couple of strategic initiatives. One is being the private bank where you saw the good DDA growth that the DDA percentage in the private bank is 30%. So we continue to see that coming. And as you saw the balanced growth we are seeing the DDAs grow along with it. So that's the, that's 1 thing that's really driving the DDA growth.

But even as Brendan mentioned, even on the consumer side, there is a lot of growth that we are seeing in the low-cost NTT as we really build the relationships with our clients. So we are seeing a lot of good traction there. And to your second question about where we go deposits from here. Obviously, deposit volume is going to depend on the overall economy, how the GDP goes, how the loan formation goes in the economy. But with some of the strategic initiatives, we believe that we can maintain in the competitive range about where deposits are going to go from here.

And as you saw, our deposit betas our 50% this quarter and we have -- we expect it to be in the high 40s, which is in line with the competition. With that, maybe, Brendan, I'll pass it on to you to see if you have any comments.

Brendan Coughlin: I'll add a little color on each consumer and private, but out of the $118 billion or so of deposits that sit in the consumer bank, 52% of them are what we call low cost, which is either DDA or checking with interest. And in the retail bank checking with interest is sort of a sub-10 basis point type of cost. So for all intents and purposes, it's very similar to DDA. The COVID period of all those operating balances reducing is firmly behind us, and we're now seeing net growth. So we're up 130 basis points year-over-year and our low-cost deposit categories. That's versus a peer average of about 50 basis points.

So we are very firmly in the top quartile in terms of low-cost growth. for the consumer bank, and we project that to continue with confidence in the outlook, which will really help control interest-bearing. Total cost of deposits when you include the interest-bearing side. And then no pointed this up. But in the private bank, we ended the quarter with very strong spot numbers. It's actually 40% DDA over 50% when you add in the checking with interest in the private bank itself as well. So we're expecting that to be in that sort of range in the same range that we've seen in the past.

So we're getting this really strong growth in the private bank without breaking the quality metrics and this far in, that's a real positive to see. And broadly, we expect that to continue looking forward.

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

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

Brendan Coughlin: Yes. On the loan side, it has -- the longer-term trend line, it's been pretty evenly mixed between mortgage, multifamily, commercial real estate and private equity capital call lines the utilization rates this quarter on the PE lines were down a little bit, so it sort of artificially suppressed the linked quarter growth was more driven by mortgage and multifamily CRE, which is pretty evenly split between those categories. both of those asset classes where we use the balance sheet comes with deep, deep relationship-based banking. And so the net returns on the customers are actually quite high.

When you look at our overall loan yields versus our deposit costs, we remain in the range of north of 400, 425 basis points of net spread between our loan yields and our deposit costs, and that has been consistent since we launched. And so the growth that we're seeing is actually deep relationship based, but even just asset yields minus deposit costs, it's net accretive to our NIM position. So the return profile of the business overall remains in the mid-20s because of that with high profitability on the balance sheet, and we see nothing that will take us off that trajectory.

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

Bruce Van Saun: Yes. Thanks. I would say the capital and priorities are really unchanged. They've been stable. So we always look to make sure that we have a good dividend on the stock and that we can raise our dividend as earnings grow, which be an objective for this year. The second place objective is to make sure we have capital supporting our clients and supporting the growth of the bank. So organic growth is kind of next up. And then the residual, you can look to do potentially some selective acquisitions. For example, in the first quarter, we bought very small but high-quality M&A boutique to, as Ted indicated, we go deeper into these industry verticals.

Do we have everything we need to really serve those clients well. And in some instances, rather than hire people. It's faster just to go out and buy an M&A boutique that doesn't use a lot of capital, but we'll certainly look for things like that or maybe some things in the payment space that can accelerate our growth a little bit, but these are generally going to be small. And then whatever we have as the residual, really goes to buying back our stock. And I still think the stock is very attractive here, as you would expect me to say.

But in any case, we're -- we bought a lot of stock in, in the first quarter, $300 million. And we gave in our guide that we're looking to buy $225 million here in the second quarter. So we'll have -- if we keep growing our overall results and our earnings will have lots of flexibility to both grow the bank organically plus buyback stock.

Operator: We'll go [indiscernible] from [indiscernible]

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

Bruce Van Saun: Yes. So what I would say on that is that we've managed the capital kind of where we think it's appropriate given the environment and stakeholder expectations. And so we've been at the high side of our range of 10% to 10.5% or slightly over the 10.5% for the last several quarters. the SCB has not really been a binding constraint. And I've said in the past, it's to me, more of a scarlet letter I can't believe that we're getting that high of an SCB, which is completely outsized relative to peers. I do think that the Fed is now kind of taking a hard look at why are there some of these inaccuracies that take place.

And so we'll see the models aren't really going into this round, but there's other things that I think the progression coming out of where we were in '23 to the strong balance sheet and jump-off point we have today, higher revenue levels. And then the scenario was particularly severe in the last cycle that is better this cycle. So we would expect to see the notional equivalent SCB even though it won't go into effect, we would expect to see that hopefully quite a bit lower and more in line with peers even before we see some of the model changes like the model changes of not picking up this benefit of swaps was really a big miss.

But even without fixing things like that, I think we'll see improvement. So I would say we'll wait and see like how the environment shapes up. Right now, we're in a war with a lot of uncertainty and profitability is still increasing. So I think carrying a little extra capital through the course of 2026 makes sense. But certainly, there'll be opportunities to reassess that if we get a positive outcome to the war and the market conditions improve, and we continue to deliver a higher level of earnings it might be possible to start to ratchet that down, but probably that would be a '27 event and not something that you'd see us do in '26.

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

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

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

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

Bruce Van Saun: Yes. And the other thing that I would say is we opened 3 PBO offices this quarter, and we have 2 more geared up on this quarter and 1 later in the year. that will bring us up. I think we're at 9%. That brings us to 11 by the end of the year. So that's an important part of the deposit gathering strategy to have an ability to go out to successful people and walk [indiscernible] we call them 2-legged customers in addition to some of the corporate relationships that we have and we get billboard value from having those new locations opened.

I would say over the next 3, 4 years, we could see that PBO count get up to 25% to 30%, if you recall, I think First Republic had maybe 80%. I don't think we're going to go near there. But I think we can get into the key markets and kind of have 25 to 30, which will also kind of keep that deposit machine cranking along. In terms of talent, the main needs we've taken the business from about 150 people at launch up to close to 600 today, including all the support dedicated support people.

I think the plan for this year is to kind of continue to build out Florida is one of the things on the PB side, but then continue with the wealth lift-outs. And so we have a pretty good pipeline on private wealth lift-outs. None of them hit in the first quarter. We hopefully will catch up here where we want to be in the second quarter, but that's also a real focal point to make sure that we have the wealth professionals co-located with our private bankers so we can deliver kind of total solutions to the customer.

Brendan Coughlin: The only thing I would add is our talent pipeline is really robust and attracting talent to this platform. It's not been a problem we -- over the course of the last few years. held ourselves back candidly a little bit for 2 reasons. One is our commitment to the market to deliver the profitability and the results we committed and then just making sure the platform is ready. We've had a lot of investment we had to make to connect all of our products and deliver the service. Our NPS has gone up from 70 to 76. And growth is obviously really, really strong [indiscernible] we're feeling good about the foundation of the platform.

So we're starting to think about how we play some more offense on bringing talent in selectively. We want to maintain a really high bar that's really important to us the banking side, we're searching for a talent and a talent only. And so that's what we're bringing in.

Bruce Van Saun: I would have said it [indiscernible]

Brendan Coughlin: I'll give you the rounding.

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

Operator: [indiscernible] Bank of America.

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

Bruce Van Saun: Yes, sure. I'll start and flip it to Brendan. But I think I referenced this on a prior call is that we see a real opportunity to kind of double down on our footprint. Some of our peer banks are okay, taking the view that our footprint is pretty saturated and we need to go outside footprint to different regions of the country to get more growth. That's not our strategy that we're arriving at its where we're already well known, we can make some investment in the branch system to really optimize locations, optimize the mix between in-store and stand-alone branches and try to pick up the growth rate of deposits just in our footprint.

And then we don't -- we avoid all that top of funnel spend advertising in a different region where nobody knows who we are. People already know who we are. So we think that makes sense. My hope is that when we get to the end and we kind of unveil this program that we'll be spending some incremental dollars on the branch network but we'll pick up that growth rate in deposits maybe by 200, 300 basis points over what the normal GDP growth rate was -- and if you look at that over a 10-year period, that's another $20 billion to $30 billion of deposits and deposits, obviously the lifeblood of a strong bank.

So this is really important to us. Stay tuned for more details probably at the middle of the year. but New York is clearly an area where proof of concept, we got in on the back of combining 2 franchises that, frankly, were from a retail standpoint in need of some TLC. We put our best people down there and brought our version of banking into a highly competitive market, and we're having great success. It is our fastest-growing region in terms of households and deposits. But we're still not at the full scale with where we would need to be to really penetrate that opportunity.

So as part of that broader effort, you would expect us to open more retail branches in Manhattan in surrounding environments, and we're pretty excited by that opportunity. we probably will open another 1 or 2 PB locations in Manhattan, for example. But the focus here really is to optimize what we're going to do on the retail side. Brendan, anything to add.

Brendan Coughlin: I guess a sign of an incredibly aligned leadership team you took almost every word out of my mouth. The only thing I would add is just give you a [indiscernible] in New York and then on the rest of the markets. But in a world post-COVID, it's -- there are a lot of questions on the future of retail branches and the importance of them, but it's still very much truth, if you want outsized operating leverage in retail banking, you need 4% plus share of branch density and despite all of our incredible successes in New York, we're still at sort of, call it, 2.25%, 2.5% branch density.

So we do think we can build on our momentum by densifying a little bit. And we'll do that thoughtfully over time. As Bruce mentioned, we'll give you more details as we get towards the middle part of the year. We also have some self-funding dynamics that still exist in the rest of the franchise. We still have lot of in-store branches that we'll be able to reposition a bit to traditional branches in the non-New York parts of the footprint that will free up some expense and capital to densify in New York. So we'll bring everybody through the plan here in short order.

But really, as Bruce pointed out, the goal really is to drive sustainable market share gains and outsized deposit growth in retail to fund the rest of the franchise.

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

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

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

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

Bruce Van Saun: Let me start and I'll flip right to Ted. But I would say we have tried to lever an expanded presence in these new markets where we brought a private banking operation or private wealth operations and then kind of magnify that by also bringing in kind of the corporate banking teams. And what we aspire to is to bring very experienced, high-quality bankers onto the platform who kind of have a growth ambition and who are good team players. And so one of the reasons that we're successful overall in the corporate bank is we worked very collaboratively with a coverage banker who has product partners that they work together to come up with good ideas.

We call it thought leadership. But at every touch point with the client, we're showing up. We understand your business. We want to get to know you. We have some ideas about how you can be more successful. And that really resonates with customers. So I think there's always room for market participants who do that well. So it's really a combination of the visibility of already being in the market. And now we have like 400 people in California over 400 people.

And that kind of works together to raise our visibility and our presence and then staying committed to really high-quality people and staying committed to that 1 citizens collaborative model where we can deliver solutions to the customer. Ted?

Theodore Swimmer: Yes. Bruce, the one Citizens model that we've implemented throughout our bank has really gone to differentiate ourselves as we expand into these new regions. So to your question, [indiscernible] we don't necessarily lead with treasury, don't necessarily lead with credit, but we try to lead with his ideas to our customers and where we differentiate ourselves is as we pick what customers we're going to attract we really look at where do we differentiate ourselves versus our competitors. So is it an industry that we have a specialization sponsor, a private equity group that we know better.

We are trying to -- and then how do we bring all the parts of the bank together to give the customer an experience that they wouldn't necessarily get from somebody else. And when you have the private bank and all the great people and all the relationships that they have and the ability to interact with people that we normally, if we were just showing up with a balance sheet, we wouldn't have the ability to address those customers, bringing the private banking and combining all those together has really been what we try to achieve as we've been building out in these markets.

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

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

Bruce Van Saun: Yes. I think it's going to be hard. It's going to be a very dynamic process, and there's a lot of cross currents that go through the P&L. I think we'll try to do that with reimagine the bank. We're not kind of detailing any notable items for what the cost is of restructuring and investment and consultants and all of that. But I think will certainly delineate it so that you understand what we're expanding. And so just within that program when we get to the $450 million run rate, that's going to be a very good return on what it took to stand that up.

So that might be one way that you can kind of get a sniff of how much are they spending and what benefits are resulting. But I do think it's a dynamic process and a lot of things, there'll be a lot of cross currents in the economy and other things. And so you might not have the cleanliness of connection that you're talking about that you're aspiring to.

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

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

Bruce Van Saun: Yes. Ken, so we're not coming off the 4.5%, and there is a seasonal pattern of expense recognition that the first quarter has the FICA and associated payroll items that go with the bonus, paying the bonus. And then the second quarter tends to be where we would bring in people. And after they get bonus. And so any net adds that we want to have, it's a big period for the net adds. So overlay some reimagine the bank onetime costs in the first half of the year, you're going to kind of peak, I would say, in the upward pressures and your merit happens in the second quarter early -- second quarter.

So you're kind of peaking in the first half of the year and then it wouldn't be as much net investment spending on ads in the second half of the year and then some of the benefits coming in from reimagine the bank will flow through in the second half of the year. So you could actually see expenses start to dip a bit in the second half. So we'll obviously give you that guidance as we get to the second quarter, we'll tell you what we think in the third quarter.

But just to preview it we're still holding to the 4.5% for the year, and it's kind of -- the build is more front-loaded and then kind of levels off or even declines a little Yes. And Ken, I would just add, we are pleased with the expense discipline that we had in the first quarter. Really the growth quarter-on-quarter was all of our -- the seasonality that Bruce mentioned. And as Brendan mentioned, we have good line of sight to some of the savings that are coming. So we mentioned the vendor sales as well as some of the property closures.

And so we feel very good about some of the some of the downtick that we will see and the benefit that's come there. And we have very disciplined returns objective on the private bank, et cetera. And I would just add, like if you should remember the 500 basis points of positive operating leverage for the year and we delivered 700 basis points this quarter. So that still remains very much true for this.

Operator: [indiscernible] go to Chris McGratty from KBW.

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

Bruce Van Saun: Yes. I think it's hard to pull it forward a whole lot. We have some of the time-based benefits of those legacy swaps running off, which is a driver of kind of moving higher in NII and overall kind of revenue. But if we got into kind of piece dividend from the resolution of the Apron war. And then there's a lot of activity in the capital markets. I think we're as well positioned as anyone certainly amongst our peers, maybe better positioned to really capture that upside if that happens. So I think that's one driver that can maybe hope to get us there a little faster.

And I'd say, in the private bank, they're on a steady as she goes by design kind of trajectory. If we did start to see more revenues, maybe we could force feed a little more investment there. And we talked a little bit about the potential for pull forward of RTB benefits if some of the new technologies kick in. So there is a case to make that potentially in a perfect scenario, you can pull it in a little bit, but I'm not promising that. And I'm really just focused on making sure we hit that by kind of the end of '27. And then I guess the converse is true, too.

If the kind of environment stays volatile and the war doesn't get resolved quickly and energy prices go up and the economy slows down a bit, there's possibilities that, that could extend a little bit. But A lot of this is actually baked in. So to get kind of from 12 to 15 is really these time-based benefits and some of the trajectory we see on the NIM and then kind of getting all the way there is execution of kind of some of the rest of the initiatives, the normalization of credit cost back to the mid-30s. We had a 39 basis point this quarter. I think we're firmly on that trajectory, again, absent something happening in the economy.

And then we'll just continue to buy back our stock fairly aggressively as well.

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

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

Aunoy Banerjee: Yes. Let me start, David, and then I'll pass it on to Ted. As you saw that we had a diversified loan growth and even in the commercial bank, we had in the mid-corporate space, we were little bit on the subscription lines as well. And we expect -- as you think about the spreads, like it definitely came down as the rates came down. But we are well within the pack. And the one thing I would talk about loan growth is -- and Ted mentioned this, this is not only just a credit relationships. It's a more holistic relationship.

So we look at the returns of this loan on a holistic basis to think about what else are we getting, whether it's the deposit relationship or the business, other business activities, fees, et cetera, that we are getting. So there's a very disciplined process in Ted's business that we go through to ensure that we are just not looking at the spreads.

Theodore Swimmer: Just to build on what Aunoy Banerjee said. Overall, in the markets in the beginning of the first quarter, we saw more on the institutional side. And on the bond side, we saw some tightening of spreads that obviously widen back out with what's going on in March. As we get specific to Citizens, we are now -- we look at the relationship holistically. So we try to figure out when we make a loan, what are the ancillary business, and this was all part of our BSO that we really completed through the end of last year.

We now feel like we have a very good discipline in place that we do not stretch on loans where we do not get an overall suitable return for our customers. As such, we really haven't seen much of a decline in spreads in the last couple of -- in the last quarter.

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

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

Ted?

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

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

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

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