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    Citizens (CFG) Q3 2026 Earnings Call Transcript

    The Motley Fool·10/16/2026 17:29:47
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    DATE

    Friday, Oct. 16, 2026

    CALL PARTICIPANTS

    • Head of Investor Relations - Chris Emerson
    • Chairman and Chief Executive Officer - Bruce Winfield Van Saun
    • Chief Financial Officer - Aunoy Banerjee
    • President - Brendan Coughlin
    • Head of Commercial Banking - Ted Swimmer

    TAKEAWAYS

    • Net Income -- $636 million, representing a 29% increase year over year driven by net interest income growth and positive operating leverage.
    • Diluted EPS -- $1.41, up 34% year over year and 8.5% sequentially, reflecting strong earnings growth and common share repurchases.
    • Return on Average Tangible Common Equity (ROTCE) -- 15.1%, an improvement from 11.7% in the third quarter of 2025.
    • Total Revenue -- $2,322 million, representing a record for the company and a 10% increase year over year.
    • Net Interest Income (NII) -- $1,675 million, growing 13% year over year due to net interest margin expansion and a 6% increase in interest-earning assets.
    • Net Interest Margin (NIM) -- 3.19%, a 19 basis point increase year over year and a 2 basis point increase sequentially, aided by fixed-rate asset repricing and terminated swap benefits.
    • Average Loans and Leases -- $147.4 billion, reflecting 1% sequential growth led by the Private Bank and retail segments.
    • Period-end Deposits -- $185.2 billion, representing 3% growth year over year, primarily driven by the Private Bank buildout.
    • Private Bank Deposits -- $18.5 billion, representing 4% sequential growth and approximately 30% in noninterest-bearing demand deposit balances.
    • Wealth Fees -- $109 million, a record for the segment and a 17% increase year over year driven by advisory fee growth and market appreciation.
    • Capital Markets Fees -- $149 million, reflecting a decrease in debt and equity underwriting offset by significantly higher M&A fees.
    • Noninterest Expense -- $1,393 million, representing a 4% increase year over year primarily due to the Private Bank and wealth buildout.
    • Efficiency Ratio -- 60%, an improvement from 63% in the prior year's third quarter, reflecting positive operating leverage.
    • Private Bank Loans -- $11.7 billion at period end, adding $2 billion during the quarter through originations in residential mortgage and multifamily lending.
    • Common Equity Tier 1 (CET1) Capital Ratio -- 10.5%, placing the company at the top end of its medium-term target operating range.
    • Quarterly Common Dividend -- $0.52 per share, representing a 13% increase authorized by the board of directors.
    • Common Share Repurchase Capacity -- $1.95 billion, following a $1.3 billion increase to the existing program capacity.
    • Net Charge-offs -- 37 basis points, remaining stable compared to the second quarter of 2026.
    • Nonaccrual Loans -- $1,461 million, a 2% sequential increase driven by modest rises in commercial and residential mortgage portfolios.
    • Reimagine the Bank Annualized Benefit -- $100 million, expected by the end of 2026, with a target to reach $450 million as the company exits 2028.
    • NII Guidance -- Expected growth of 2.5% to 3% for the fourth quarter, driven by continued margin expansion.
    • NIM Guidance -- Expected range of 3.23% to 3.26% for the fourth quarter and 3.30% to 3.50% for the fourth quarter of 2027.
    • Noninterest Income Guidance -- Expected growth of 4% to 5% for the fourth quarter, led by record M&A pipelines and wealth management.
    • ROTCE Target -- 16% to 18%, which management expects to achieve by the end of 2027.
    • Capital Markets Pipeline -- Record M&A backlog entering the fourth quarter, with management reporting deal quality and average fees per transaction are increasing.

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    RISKS

    • Banerjee stated, "Notwithstanding this AOCI impacts, we remain confident in our capital strength and capital generation capacity," noting a 60 basis point hit to adjusted capital ratios during the quarter due to rate volatility.
    • Van Saun noted that while macro fundamentals remain positive, "we expect uncertainty and volatility to remain high," which may influence market conditions and customer behavior.
    • Banerjee reported that mortgage banking fees were lower "primarily due to the negative net MSR valuation result of $13 million given high volatility in mortgage rates."

    SUMMARY

    Citizens Financial Group, Inc. (NYSE:CFG) reported record revenue and significant year-over-year earnings growth for the third quarter, driven by net interest margin expansion and the continued scaling of the Private Bank. Management reported positive operating leverage of 5.3% year over year, supported by record net interest income and record wealth management fees. The company stated that it is executing on several strategic initiatives, including the Reimagine the Bank program, which focuses on leveraging AI to drive productivity and efficiency. Management indicated that capital and liquidity positions remain strong, enabling the board to increase the quarterly dividend by 13% and expand the share repurchase program capacity to $1.95 billion.

    • Management reported that the Private Bank reached $18.5 billion in deposits and $11.7 billion in loans, adding a new wealth team in Tampa and additional bankers in Philadelphia.
    • CFO Banerjee stated, "We expect to exit 2026 with about $100 million of annualized pretax benefit," regarding the Reimagine the Bank program, which management plans to double to $225 million by the end of 2027.
    • Management indicated that the acquisition of DH Capital has positioned the commercial bank to finance the AI ecosystem buildout, focusing on construction lending for data centers with investment-grade lessees.
    • CEO Van Saun noted the intent to remain active in share repurchases, stating, "I want to be in the market buying back the stock. I think the stock is cheap."
    • The company is progressing on its consumer next branch project, which involves replacing in-store franchises with standalone branches designed to attract mass affluent and affluent customer households.
    • Management confirmed that the Private Bank remains self-funding with a healthy spread of approximately 4% over deposit costs, contributing $0.16 to the quarterly EPS.

    INDUSTRY GLOSSARY

    • AOCI (Accumulated Other Comprehensive Income): A component of stockholders' equity that includes unrealized gains and losses on certain investments and derivatives not yet realized in the income statement.
    • CET1 (Common Equity Tier 1) Ratio: A key regulatory capital measure that compares a bank's core equity capital against its total risk-weighted assets.
    • DDA (Demand Deposit Account): A bank account from which deposited funds can be withdrawn at any time without advance notice.
    • DH Capital: A boutique investment bank acquired by Citizens specialized in digital infrastructure and internet advisory services.
    • MSR (Mortgage Servicing Rights): A contractual agreement in which a party is paid by the mortgage lender to service a loan, with the value of these rights fluctuating based on interest rates.
    • NIM (Net Interest Margin): A ratio that measures the difference between the interest income generated by a bank and the amount of interest paid to its lenders, relative to the amount of its interest-earning assets.
    • PPNR (Pre-Provision Net Revenue): A measure of a bank's earnings power before the impact of credit loss provisions and taxes.
    • Reimagine the Bank: A strategic transformation program at Citizens focused on operational efficiency, AI integration, and simplified business models.
    • ROTCE (Return on Average Tangible Common Equity): A financial ratio that measures profitability by calculating net income available to common stockholders as a percentage of average tangible common equity.
    • TCE (Tangible Common Equity) Ratio: A capital ratio that measures a bank's tangible common equity as a percentage of its tangible assets, used to assess the ability to absorb losses.

    Full Conference Call Transcript

    Operator: Please continue to hold. Today. Conference will begin momentarily. Thank you. 1. Good morning, everyone. And welcome to the Citizens Financial Group Third Quarter 26 Earnings Conference Call. My name is Denise, and I will be your operator today. Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded. Now I will turn the call over to Chris Emerson, Head of Investor Relations. Christopher, you may begin.

    Chris Emerson: Thank you, Denise. Good morning, everyone and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Saun our CFO, Aunoy Banerjee, will provide an overview of our third quarter results. Brendan Coughlin, our President and Ted Swimmer, our Head of Commercial Banking are also here to provide additional color. We will be referencing our third quarter presentation which is located on our Investor Relations website. After the presentation, we will be happy to take questions. Our comments today will include forward looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation.

    We also reference non GAAP financial measures. So it is important to review our GAAP results in the presentation and the reconciliations in the appendix. And With that, I will hand it over to Bruce.

    Bruce Winfield Van Saun: Thanks, Christopher and good morning everyone. Thanks for joining our call today. We delivered another good quarter in Q3 as our strong momentum continues. EPS growth was 8.5% sequential quarter and 34% year on year and ROTCE improved to 15.1%. We continue to deliver strong positive operating leverage of 1.8% sequential quarter and 5.3% year on year. Total revenues hit a record in Q3 paced by NII growth of 2.7% sequential quarter and up 13% year on year. Notwithstanding some interest rate movement and volatility during the quarter, we saw our NIM meet expectations. With 2 basis point increase to 3.19% which positions us for strong NIM expansion in Q4.

    Loans and deposits were broadly flat as expected given some loan pull forward into Q2 and seasonality on deposits which will turn favorable in Q4. Fees were down slightly given volatile capital markets conditions which resulted in some deals pushing into Q4. We still believe that market conditions remain healthy as we enter Q4 and our pipelines are very strong particularly in M&A which is at record levels. We do not see the current level of rates introducing any real stress on our various loan portfolios. Credit metrics remain broadly positive Our capital, liquidity and funding positions remain strong. Given our consistent growth in earnings, the Board authorized an increase in our dividend of 13% to $0.52 per share.

    In addition, the Board also increased the capacity of the company's common share repurchase program to 1.95 billion, an increase of 1.3 billion. Notwithstanding lower AOCI adjusted CET1 ratio fell in the quarter, we are comfortable operating with our gross CET1 ratio a little above our 10% to 10.5% target range which will still allow for at least $200 million in Q4 share repurchases. We continue to progress our strategic initiatives with good consistent progress across the private bank and wealth build-out, Reimagine the Bank, our consumer next branch project, attracting talent to the commercial bank and growing our New York Metro presence. We have significant resources dedicated to leveraging AI and to driving a strong cybersecurity framework and capabilities.

    Overall, there is lots to do. We feel we are prioritizing and executing well. We feel good about our outlook for Q4 and we feel we are positioned well for 2027 and the medium-term. Our view of the macro fundamentals remains positive though we expect uncertainty and volatility to remain high. With that, I will turn it over to Aunoy for the financial details. Aunoy?

    Aunoy Banerjee: Thanks, Bruce, and good morning, everyone. As Bruce mentioned, we delivered strong third quarter results. Record revenue performance and expense discipline drove more than 500-basis-points of positive operating leverage year over year. Referencing slides 3 and 4, we delivered EPS of $1.41 for the third quarter. An $0.11 or 8.5% improvement over the second quarter. And we saw solid improvement in ROTCE to 15.1%. Up from 13.9% in the second quarter. PPNR was up 4.5% linked quarter and up about 19% year over year. Third quarter results reflect higher NII given continued net interest margin expansion, slightly lower fees and good expense discipline.

    With respect to our balance sheet, we continue to maintain robust capital strong liquidity levels and a healthy credit reserve. Turning to Slide 5, I will cover our third quarter results in more detail. Starting with net interest income. which was up 2.7% linked quarter given a 1% increase in interest earning assets and a higher net interest margin. Our net interest margin continued to expand increasing 2 basis points for a 19-basis-point lift compared with the same quarter last year. In the third quarter, a time based benefit from terminated swaps contributed 2 basis points.

    While the benefits of fixed rate asset repricing and improved asset yields were essentially offset by funding costs as rates moved higher during the quarter. Importantly, average demand deposits were up 2% which helped mitigate the increase in overall deposit costs, which were up 3 basis points. Moving to Slide 6, fee income is down 1% linked quarter and up 3% year over year. Capital markets had a very strong third quarter. With fees down slightly compared with the strong second quarter and lower than the exceptional third quarter last year which benefited from deals being completed following market volatility earlier in the year. M&A fees were up significantly linked quarter.

    And our pipeline heading into the end of the year is very strong. Loan syndications bond and equity underwriting fees were slightly lower given market volatility. We continue to maintain strong market share. Ranking as the number 2 middle market sponsor book runner for the last 12 months. Wealth delivered another record quarter. With fees up 7% linked quarter. And 17% year over year. Reflecting higher advisory fees driven by AUM growth in the private bank and in our retail network. Mortgage fees were lower primarily due to the negative net MSR valuation result of $13 million given high volatility in mortgage rates. Though servicing revenue provided a partial offset.

    On slide 7, expenses were well managed and stable linked quarter. And our efficiency ratio improved to 60%. We delivered positive operating leverage in the quarter of 5.3% with year to date at 6.3%. Moving to loans on Slide 8. Average and period end loans were both up slightly linked quarter. Paced by growth in private bank and retail. Private bank period end loans were up $2 billion linked quarter. Reflecting higher commercial line utilization and strong originations in high quality residential mortgage and multifamily lending. Commercial period end loans excluding the private bank were down $1.5 billion or 2% linked quarter. Given some loan pull forward into the second quarter.

    Third quarter results driven by continued planned reductions in CRE primarily given multifamily and general office paydowns, as well as lower C and I line usage. Growth in period-end retail loans ex-non-core was $565 million led by real estate secured categories. This was partially offset by non core portfolio runoff of roughly $300 million for the quarter. Next on slides 9 and 10, we continue to do a good job on deposits. Despite some seasonality, which should reverse in the fourth quarter. Average deposits were stable linked quarter primarily driven by growth in commercial. Largely offset by lower consumer. Spot deposits were also stable linked quarter.

    Reflecting growth in the private bank which reached $18.5 billion at the end of the quarter and growth in commercial partially offset by a decrease in consumer. Our consumer deposits represent 63% of our total deposits. Which compares favorably to a peer average of about 57%. Additionally, our mix of total interest bearing and low cost deposits was stable at 42% of total deposits. Moving to credit on slides 11 and 12. Credit continues to be broadly favorable. With net charge offs stable at 37 basis-points compared with the prior quarter. On Slide 12, you will see that we had a modest reduction in the allowance along with a slight reduction in ACL coverage ratio to 1.47%.

    We continue to improve our portfolio mix with the reduction in general office and multifamily balances. And strong originations of lower loss-content C&I residential real estate secured and high quality private bank loans. The economic scenario we used was a little more conservative this quarter. Reflecting the higher rate environment. 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 a healthy 10.5% at the top end of our medium term target operating range. We returned about $322 million to shareholders in the third quarter.

    With $197 million in common dividends and $125 million of share repurchases. Cumulatively, we have now returned $1.24 billion to shareholders in dividends and share repurchases through the first 9 months of the year. Our AOCI adjusted CET1 ratio and TCE ratio ended the quarter at 8.7% and 6.7%, respectively. Notwithstanding this AOCI impacts, we remain confident in our capital strength and capital generation capacity. Moving to Slide 14. The private bank continues to make excellent progress. The private bank again delivered strong deposit growth ending the quarter at $18.5 billion Importantly, the overall deposit mix and cost continues to be very attractive. The private bank also delivered solid loan growth in the quarter.

    Adding $2 billion of loans to end the quarter at $11.7 billion The loan portfolio maintains a healthy spread of approximately 4% over deposit costs. Client assets increased by $1.2 billion to end the quarter at $12.4 billion We added another strong team in Tampa and additional bankers in Philadelphia this quarter. And we plan to continue adding top quality teams in key geographies. Moving to slide 15, We are making very good progress executing our Reimagine the Bank program. As we continue to leverage a host of new innovative technologies across the bank. To simplify our business model reshape our customer experience and drive a meaningful improvement in productivity and efficiency. Our key work streams are well underway.

    And we expect to hit our financial targets for the program with minimal net cost this year. We expect to exit 2026 with about $100 million of annualized pretax benefit. Then more than double that to $225 million by the end of 27. A little ahead of our original plan. And then target at least $450 million of benefit as we exit 2028. Moving to slide 16. We provide our outlook for the fourth quarter. Which contemplates that the Fed raises its target rate by 25 basis points in December, We expect net interest income to be up about 2.5% to 3% driven by continued margin expansion to a range of 3.23% to 3.26%.

    Noninterest income is expected to be up approximately 4% to 5% led by capital markets and wealth. We are projecting expenses to be up about 1%. This puts us on track to deliver over 600-basis-points of positive operating leverage for the full year. The charge off level is expected to be stable to down slightly. And we should end the year with 10.6% to 10.7%. Including expected share repurchases of $200 million in the quarter. Looking out further, we continue to see a clear path to achieving our 16% to 18% ROTCE target by the end of 27. Slide 17 provides incremental detail on our net interest margin progression to the end of 27.

    We continue to improve our net interest margin. And we project to deliver a 4Q 26 NIM in the range of 3.23% to 3.26%. And in the range of 3.30% to 3.50% in 4Q 2027. This projected margin expansion combined with the increasing contributions from the private bank our diversified capital markets businesses, and normalizing credit should drive our ROTCE into our target 16% to 18% range. To wrap up, we delivered strong third quarter results. Highlighted by record revenue and a robust level of positive operating leverage. Notwithstanding the continuation of volatility, and uncertainty in the macro environment, we have a positive outlook for the fourth quarter.

    With good momentum across our businesses continuing to drive strong earnings growth and solid operating leverage. We will continue to focus on progressing our strategic initiatives and delivering for our stakeholders. With that, I will hand it back to Bruce.

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

    Operator: Thank you. We are now ready for the Q&A portion of the call. And our first question comes from Scott Siefers with TD Cowen. Your line is open.

    Scott Siefers: Good morning, guys. Thanks for taking my question. Let's see. So it was great to see you guys reiterate the $330 million to 30% margin by year end 2027. I guess since the last time you all addressed it, there has been a remarkable amount of change in the in the rate backdrop. So, you maybe-- I was hoping you could spend just a moment or 2 sort of discussing what you see as getting sort of tougher and easier in meeting that goal, whether it is the deposit pricing pressures potentially or, you know, things that can move 1 way or another, with all the moving parts?

    Bruce Winfield Van Saun: Sure. So I would say the outlook continues to be positive that we have a number of drivers that are going to work for us regardless of what happens in the rate environment. The so called time based benefits as we described them with legacy swaps accounting drag rolling off every quarter. We have a big slug of that in the fourth quarter and that continues a bit into 2027. We also have the front book, back book dynamic that is-- we are pretty confident it is going to be there that the yield curve should continue to stay relatively steep and that provides further lift.

    Beyond that, then a lot of the remaining variability is what happens with how we are managing the balance sheet. I think we have a lot of confidence. You can see the level of non interest bearing deposits has held steady through the last period with a lot of volatility. We really focused on growing low cost and deep relationships across consumer and private bank in particular. So that is positive for the cost of funds and I would say more broadly we have 3 basic segments that we can optimize in terms of where we are taking our interest bearing deposit funds. And so I think we are doing a good job there as well.

    If you look at the quarter relative to others, total deposit costs are only up 3%, which is kind of certainly on the good side of others. So, feel good about that. And then on the loan side, we continue to focus on deeper relationships and using our balance sheet in places where we can really be relevant to the customer, whether it is in commercial, consumer or the private bank. And we see I think good opportunities there to grow our market share. We are focused on commercial and lead left relationships and focusing in the right sectors where we think we can get decent spread and decent cross sell.

    The private bank also continues to grow loans at a good clip and the mix is pretty attractive from an overall yield standpoint. it is accretive to overall NIM. So those are the things I would say Scott that we feel good about our ability to drive upwards into that range and we are lastly, would say we are asset sensitive. And so assuming that the Fed goes another hike or 2, that will be accretive to the NII outlook. So anyway, like overall feeling quite confident. I do not know if any of my other colleagues Aunoy, if you want to add anything to that.

    Aunoy Banerjee: No, Bruce. I think you covered it. The only thing I would say, Scott, is you have seen our past performance, and we have grown NIM by 19-basis-points since the last. since 3Q of last year. So that is a. That augurs well for this performance to continue. Anything from you, Brendan, on deposit You know, I just.

    Brendan Coughlin: Not a lot to offer. I mean, 1 or 2 quick details to put some color on it, but the private bank we are up 6 billion year over year, and it is remarkably consistent of $1 billion on average with some quarters a little bit better, some quarters a little bit lower. But you can look at an 8 quarter view, 1 billion of growth with the mix being consistent of 33 ish percent DDA and 40. Mid forties of low cost. And we see that continuing to the future. that is idiosyncratic to us, and it is helping us keep DDA in a good position and outperform, which should help deposit costs.

    Consumer, while spending is still high and the average consumer is still really, really healthy, overall. We continue to see our metrics outperform peers, and that is been a trend for 7, 8, 9 years at this point and we expect that to continue. So that is the majority of our deposit books. I feel pretty good about, I feel good about that. We are allocating loan capital, as Bruce mentioned, to the right places with yields that will drive NIM accretive activities on all sides of the business.

    Scott Siefers: Okay. Thank you. I think that. I am sure there are a lot of questions, so that should do it for me. Thank you.

    Bruce Winfield Van Saun: Great. Thank you.

    Operator: The next question comes from John Pancari with Evercore ISI. Your line is now open.

    John Pancari: Good morning. Just on the deposit side, just wanted to get updated thoughts on post the spike in rates and what you are seeing around deposit pricing and the pressure there both competitively and the rate backdrop. How would you characterize the trajectory of your deposit costs in coming quarters? Maybe give us a updated deposit beta expectation. And then any updated thoughts around that I know Bruce, you mentioned the non interest bearing balances and the favorable trajectory. How should we expect that trend in terms of the mix of non interest versus interest bearing, how that progresses in this type of rate environment? Thanks.

    Bruce Winfield Van Saun: Sure. I will start and quickly hand it off to Aunoy But I would say Scott, it is always in any quarter we talk about, it is always going to be competitive for deposits. And so the question is really where is your focus and what are the areas that you think you can lean into and develop good deposit performance and trajectory. So I would not call that out as something that we have not seen before. it is intensifying. I think it is level and steady with what we have seen before. And we have been through an upcycle, and then we would start going through a down cycle.

    And now we have stopped, and we have gone-- flipped back to an up cycle. And so I think about it, there is no reason why this up cycle, if it is 2 or 3 hikes, should not really retrace what we saw coming down or what we saw the last time it went through 3.75 to 4.25 or 4.5 and those were really kind of deposit betas in the high 40s. So I do not think I would call out anything different than that. That would be our expectation And then I will let Aunoy and Brendan again talk more about some of the deposit trajectory.

    But the confidence in that non interest ability to grow that particularly in the private bank, but also in consumer and then we have some strategies to grow it in commercial, but we are not counting on that as much, but feel really good about that. So, yeah.

    Aunoy Banerjee: John, I would say we are pleased with our deposit performance. As Bruce mentioned, like when rates were coming down, we were roughly around in the high-40s beta. So as rates raise back up, we expect to be in that level. And as you have seen, like our deposit cost performance, total deposit cost performance this quarter is only 3 basis point increase. And even in the last quarter, we also had a very good deposit cost performance. So we are actually we are growing deposits with our clients and making sure that we get the operating balance. at that. There I think 3Q has some seasonality in deposit.

    We will also gonna have to be we will try. which will trace back in 4Q. So 4Q deposit growth across our 3 businesses should be quite solid. And then as Brendan mentioned earlier, the private bank, it is over 30% of DDA balances growing nicely, and we have been growing nicely every quarter. And that gives us a lot of confidence, we have good pipeline against that. With that, I will turn to Brendan to see if he has any comments.

    Brendan Coughlin: Just competitively, just reiterate Bruce's point that while things are competitive, it is not any more competitive than what we saw the last you know, 4 to 6 quarters. So we are seeing, you know, deposit yields, come up in terms of lead offers from a lot of the banks. But in line with what you would expect with the rate forward outlook. I would just say we have, and I mentioned this on prior calls a few times, but I think we have a more diverse set of levers to manage our deposit costs than our peers.

    Obviously, the private bank being idiosyncratic to us and the growth that we are seeing in outsized mix of DDA and low cost is 1 very big 1 for us that is helping us manage deposits and I think giving us more flexibility than maybe we see some other peers. But when you unpack the retail book, which is still the majority of our deposit business, and you have got $8 billion or so in CD rollovers every quarter. We tend to get about a 100-basis-points of net benefit in deposit yield, and we retain 85% to 90% of those balances and various different ways that should sustain into the future.

    That gives us a positive offset to increasing cost in other parts of the book. We have got Citizens Access that is a lever that allows us to make smart in quarter choices on how to best optimize our deposit yield, whether it is better to put some in Citizens Access or whether it is better to give it to kind of a core retail bank or commercial or private bank. We have got we have got that as a lever as well. And then, you know, our outsized performance on DDA obviously gives us some flexibility on when and how we put interest bearing cost back into the system.

    So anyway, feel really good about diversity of our business model and the levers that we have, and I think you see that this quarter as Aunoy and Bruce both pointed out in our interest bearing and total deposit cost being better than what you are seeing in other prints, and I think that should continue.

    John Pancari: Okay. Great. Thanks, Brendan. And just quickly on the on the loan side, just given the move up in rates, could you maybe just comment on demand, and within particularly on the commercial side, are you seeing any erosion in demand or CapEx plans or anything that points to maybe some moderation amid the higher rate environment? Thanks.

    Theodore C. Swimmer: Ted, at this point, we have not. Loan demands actually in the last couple of weeks started to pick up a little bit. As we got entered the fourth quarter. So it is certainly a lot of conversations we are having with our customers, but up to this point, customers have really not changed their desire to borrow money.

    Bruce Winfield Van Saun: And I would just add some color on that too. This whole AI ecosystem build out is kind of full on. So it is a very strong dynamic and that kind of cascades into a lot of the supply ecosystem that gets those centers built. And even with higher rates, that kind of desire to get the compute power in place you know, the players are not really batting an eyelash with a 25 or the back end of the curve is moving up a bit. So I think that is relatively inelastic to pricing.

    There will be kind of some other sectors maybe you get another couple of hikes and then maybe some of the PE and leverage sector starts to become a little more circumspect, but we have not seen that as of yet.

    John Pancari: Great. Thanks Bruce.

    Operator: Your next question comes from Ryan Nash with Morgan Stanley. Your line is open.

    Analyst: Hi, morning. The fee income guidance for the fourth quarter, it sounds like you are pretty optimistic on capital markets pipeline coming through. And so just wondering what the conviction level is there and how sustainable is the demand in middle market sponsor activity feels?

    Theodore C. Swimmer: Sure. We feel very strongly about where we are in the capital market side right now. Our pipeline, especially on the M&A side, have never been higher than they are today. And not only that, the quality of the deals that we are looking at and executing now are up just continue to get stronger. Our fees per average transaction continues to go up. And we have a really huge backlog as we think about fourth quarter and really into 2027. The DCM or the debt capital markets side of our business, we had a couple of deals slip from the third quarter to the fourth quarter. So we started off the fourth quarter on a really good start.

    And the pipeline continues to grow there. I think the only offset of that could be if rates go up higher in the in the fourth quarter that you may see some of the opportunistic bond refinancing to push out. But at this point, we have not seen that occur. And then the equity business, the backlog for all of us is pretty strong on the equity side. We are waiting to see some big transactions clear the market If they do, I think that is going to be a very good quarter for equities. So all in all, we feel very, very strongly about where we are entering the fourth quarter.

    Bruce Winfield Van Saun: Yes. And I would also point to, it is not just the capital market story. We have had kind of nice growth particularly in wealth We usually get some seasonality in some of the consumer fee categories. So feel good overall about that guide.

    Analyst: And then in terms of private credit competition, on the loan side, any change there?

    Theodore C. Swimmer: I would say no. There was obviously a drop off in the second quarter when there was more noise around private credit. We saw private credit come down a little bit on leverage, down a little bit on the size of their commitments. But that is kind of stabled off in our leveled off in the third and fourth quarter. Private credit still anxiously still trying to put money to work and we are kind of indifferent to it from our side, whether they if they if private credit is more aggressive, it tends to help our CCS business or and if they do less, it helps our syndications business.

    So both ways we feel relatively but we really have not seen much of a difference in their behavior over the last 2 quarters.

    Analyst: Thank you.

    Bruce Winfield Van Saun: Thank you.

    Operator: Your next question comes from David Chiaverini with Jefferies. Your line is open.

    David Chiaverini: Hi, thanks for taking the questions. Really strong growth in the Private Bank, again this quarter. Can you talk about the drivers behind that strong growth and the outlook from here?

    Brendan Coughlin: Sure. there is a number of them. I would say first is our brand and is continuing to scale in the markets that we are in and both in terms of visibility, but also the number of boots on the ground. So when we started the build out, we were. We started with 150 people, back in 2023. We are now up to almost 700 people. We are expanding markets as you heard from us this week, we have built into Southern California. We are continuing to take density in Northern California or Boston and New York and Florida markets are expanding. We opened a new office West Palm Beach.

    We just opened a small office in Philadelphia this week, which is the news. We opened a small office in Tampa And we are now up to 12 wealth teams that are both bringing assets under management, but also referring banking over. So we can. We expect that to continue. We have 10 PBOs. We expect 6 more to open into 2027, and we continue to add relationship managers and wealth managers as we find high quality folks that can join the platform and meet the bar that we hold for the business. The other point I would make is that the folks that we brought over early have a lot of client followership from their old place.

    And, while we have seen an enormous amount of their clients follow over, there is still a lot more to go. I would I would say their books of business are at, call it, the 50% to 60% level on average on what they were prior at the old institution. And so we are seeing a slow steady drip of new client activity coming over that knew them in the past. And so that the whole process of reassembling their book story is not complete.

    And then lastly, the value that the commercial bank in particular is driving for the private bank in terms of referrals and our 1 citizens mantra has been ever-increasing as we put our capital markets business our IPO capabilities, M&A advisory capabilities, liquidity events that are happening and the partnership amongst the teams is driving a new source of business for the teams that they did not have before. And so all of those factors are increasing and continuing to fire on all cylinders. So we expect the forward outlook of the business to be, steady at the level of growth, and you have seen that from us We have not seen it, deteriorate or at all.

    In fact, probably you see the loan book is actually accelerating with 2 quarters in a row at 2 billion in growth in linked quarter.

    Analyst: If we were talking last year, we were probably at a billion, linked quarter, loan growth.

    Bruce Winfield Van Saun: So we are seeing some dimensions of not only steady, but also accelerating momentum. And there is nothing that we see in the near to medium term that would suggest that would slow. And I would just add 1 thing, is not only are we getting the growth, we are sustaining the returns on the business which is important. So it is kind of acting as a locomotive to pull the overall ROTCE higher for the company as it grows.

    David Chiaverini: Very helpful. And Bruce, you mentioned about the AI build out is going strong. To what extent is Citizens participating in financing this build out?

    Bruce Winfield Van Saun: Yes. So we have a good position in this space. Partly because we went out Sometimes it is better to be lucky than good, I will just say. But our timing on acquiring DH Capital, which was a digital infrastructure lead advisor really got us a great position in understanding kind of what was happening and owning key relationships and having kind of that front row seat to really see that it was flipping from just a pure more advisory business to a financing business. And so under Ted's leadership, we have kind of brought a strong financing team to work with DH Capital and really participate in a lot of those financing transactions.

    We are disciplined on kind of what we wanna hold ultimately on our balance sheet. So the objective ultimately is to, you know, participate in some of that early construction lending opportunity, but then actually move it on into more permanent financing like the bond market. And there is a lot of fees that can be made through that whole process. And also some spread income. But we have well defined buckets as to you know, how much we want to hold and we are also hedging some of those exposures as well.

    Because even though it seems like you cannot miss right now in the data center space, you are kind of always wondering, does the pin go in the bubble someday? And we have to think about those scenarios as well. But I think we played it exceptionally well. Well. I will turn it over to Ted for any more color.

    Theodore C. Swimmer: The only thing I would add is the vast majority of our exposure to this space is in with companies that are lessees are first of all in the development companies of the data center build out and the lessees are vast majority of them are investment grade lessees. Hyperscale. Hyperscale or So we feel very good about what exposure we have taken there. And we are not relying a lot on speculative stuff. We are doing most of it with committed power, committed building, and regulatory approval already. So we are not doing the more risky the vast majority of our stuff is not the more risky stuff that you are seeing being done out there.

    David Chiaverini: Very helpful. Thank you.

    Bruce Winfield Van Saun: Thank you.

    Operator: The next question comes from Erika Najarian with UBS. Your line is open.

    Erika Najarian: Hi, good morning. Hi. Just taking a step back, your net interest income guide this year is 10 to 12%. As I think about Slide 17, in theory, just the time based benefits you know, would get you to 35 by 4Q 2027. You are asset sensitive. Your earning assets in the third quarter grew 5% year over year, you feel great about both the liability and asset side of your balance sheet. I guess, like, why should NII growth slow down from that 10% to 12% in 2027 as what consensus is assuming. So consensus is assuming 9% NII growth, which is slower than the 10% to 12%.

    Given the NIM benefits plus, it seems like earning asset growth is still pretty decent. Why would it slow down?

    Bruce Winfield Van Saun: Well, first off, Erika, we are not going to give 2027 guidance yet. We do that the January call. So nice try on that 1.

    Erika Najarian: I had to.

    Bruce Winfield Van Saun: But know, I feel that the 1 thing that you might not grow, and I am not saying that is where it is going to land, but why the consensus may be Less is because we were we were front loaded with our time based benefits. And so that was very significant NIM expansion And so, you know, as Aunoy said, you know, up 19-basis-points year to date, a big fourth quarter. Are we going to repeat that? We do not have as much time based when you look out into 2027.

    And so I think we will still have solid NIM expansion, but it will not be as much And, you know, the balance sheet dynamics, feel really good about. So if in fact it turned out to be kind of around 10% instead of over 12%, that is still pretty damn good. And that is still creates a very positive dynamic around overall revenue growth positive operating leverage strong EPS growth, and ROTCE improvement in getting us to that 16% to 18%. So all of that is set up very well. that is what gives us a high degree of confidence that not only are we gonna have a strong Q4, but we are going to have a good 2027.

    And you, and correct me if I am wrong, but you had that ROTCE target before you introduced the concept of Reimagine the Bank.

    Erika Najarian: Was Reimagine the Bank always sort of part of the plan in terms of getting you to 16% to 18%. Or could that be sort of accretive in terms of where you could land in the range?

    Bruce Winfield Van Saun: Yep. So we always held that outside. That was not built into getting the 16 to 18. We are doing that kind of through the NII tailwinds through the business initiatives that we have like private bank, and slight continued improvement in the credit as we burn off the drag from the office charge offs. and the capital buybacks, etcetera.

    So anyway, we can get there without that. it is incremental and we will, you know, have an opportunity to make some decisions that is 1 of the things I think we will focus on in January You may have noticed, but we had initially when we unveiled Reimagine the Bank, we said we hit a 200 run rate by the end of 27 fourth quarter, We bumped that up a bit to $225 million. Maybe there is a chance to do more.

    But whatever in year benefits we have in 2027, first they have to cover 1 time cost, but then there is something that will flow through the bottom line And the question is do we let it flow all the way through or do we turn around and say, let's go a little faster with the private bank or let's go a little faster with our next initiative Let's let Ted go out and hire a few more commercial bankers who are beating the door down by the way to get on the platform, which is a good place for us to be.

    But, you know, typically, when you have seen us run things like TOP, we just meld that into overall operating leverage. And so there is some flow through the bottom line. But also can look at what are the things that we really prioritize in terms of our investments. You know, you are seeing across the industry, a lot of folks are growing expenses kind of high single digits at this point.

    And we are still kind of locked in around let's keep it under 5 even with strong revenue performance that is going to put a little upward pressure on the 4.5 target at the beginning of the year. it is still managing it to under 5 And I think having that discipline results in that operating leverage, which results in the high EPS growth and getting to the ROTCE promised land. it is unlikely that we will when we give you the guide that we will be relaxing that discipline. Think still important to set priorities and to stretch some of that investment out over time so that we can land the plane in the 16% to 18% territory.

    Brendan Coughlin: Bruce, the only thing I would add, Erika, to that is you know, Bruce's point around the onetime cost. So, you know, this year and Reimagine the Bank was essentially breakeven. Next year, we will see some benefits flow to the bottom line. But there is still a meaningful amount of onetime costs. So when you start to think about the impact to ROTCE, and the reason why RTB was not contemplated really in our guidance we are talking about 2027.

    So when you think about 2.83 thousand and beyond, when the onetime cost dramatically reduced, that is when you are really gonna start to see the net impact of that whether it is the fuel reinvestment on ROTCE accretive activities or whether we are going to drop some to the bottom line or likely a hybrid of both. So, anyway that is 1 way to think about it as well is think a little bit further past 2027 when you when you when you think about the long term implications of Reimagine the Bank.

    Erika Najarian: Got it. Thank you so much. Sure.

    Operator: Thank you. Your next question comes from the line of Chris McGratty with KBW. Your line is open.

    Chris McGratty: Great. Good morning. Just to follow-up on the 16% to 18% for a moment. I think in the prior, you said get into the range by 4Q. 2027, which is a seasonally pretty strong quarter. Given how the world has changed and Reimagine the Bank a little bit better than prior Do you have a bias within that as a jumping off point? I know it is kind of a nuanced question. But within the 4Q 27 feels like it might be a little bit better than the low end, but any color would be great.

    Bruce Winfield Van Saun: Yeah. I think the other wild card that you did not mention is the AOCI impact, which kind of hurts your tangible equity. But in terms of giving you a little tailwind in the ROTCE calculation, certainly does that. So anyway, I would not-- rates are going to move around and we will see where we are in January when we give you the guide. Possible that could pull it and we do not have to wait all the way to the fourth quarter. Okay.

    Chris McGratty: And then on that, the 200 for the fourth for the buyback is a good number. Does the how are you feeling about just the movement in adjusted CET1 ratio given how sharp the moving rates were? I know it obviously dropped in the quarter and it can reverse, but I guess the internal debate about pace of buybacks given the move in the bond market Any color there?

    Bruce Winfield Van Saun: Yes, we called out in the prepared remarks that we are you know, monitoring those ratios, the adjusted ratios. But and so as a result, we may let the CET1 gross ratio move up a bit above the high end of our range 10.5%, we had been operating kind of 10.6%, 10.7%, it is likely that is where we will be at the moment. But there is a lot of cross currents taking place that would factor into our decision making. 1 is when Basel III comes into effect and we get RWA relief that is about 110 basis points.

    And so the fully phased in calc right now with the AOCI from a regulatory standpoint, it actually would come in over time. But if you wanna take the hit on AOCI, you should get the benefit of the RWA. And so, you know, what is a 7% ratio with the RWA overlay on that, it goes back up to 8%. So that is that is just 1 thing to think about there. And then you know, you look at what happened back in 2023, the overall industry kind of adjusted ratios were much lower. And so we have kind of built capital over time.

    And so we feel we can certainly operate at these levels and I think the latest kind of SCB indicative calculation that the Fed did show that we have done some really good work on the balance sheet in terms of running off auto and running down CRE and things like that. So anyway, feel confident that we can operate at these levels and we will take a little bit of precaution and let the gross ratio drift up a little bit. But I want to be in the market buying back the stock. I think the stock is cheap. I may sound like a broken record on that, but I think the stock is below its fair value.

    So we are gonna take advantage of that.

    Aunoy Banerjee: And the only other thing I would add, Chris, is like, look, we are generating a lot of capital. Our capital capacity generation is quite high. So yes, maybe we did with the AOCI. it is a violent move in rates in the third in the third quarter. So that. We lost 60 basis point, but we generate more than 30 basis point of capital every quarter through our net income generation. So if you think you put that into context of that.

    Chris McGratty: Yep. Very helpful. Thank you.

    Operator: Thank you. Your next question comes from Ebrahim Poonawala with Bank of America. Your line is open.

    Ebrahim Poonawala: Hey, good morning. I guess maybe just Bruce following up on what you talked about with AOCI and just talk to us. Like do you think about tangible common in the construct of wanting to be over time around 7% or above We often hear that the rating agencies are sensitive to that. Just how do you. it is not a binding constraint, but how do you think about the TCE ratio? This context of managing capital?

    Bruce Winfield Van Saun: Yep. I think it is another thing to look at. it is not a binding ratio, but, you know, I would say the market stakeholders look at that. And I would say, you know, 7% as a kind of level that you would like to be at or above would be a reasonable level that you pointed out. So we are we are a tad below that, but to a noise point, you know, we are we are building capital and we are going to retain some of that to get our capital position a little higher. So I do not think that is going to be a problem to get there and to operate there.

    And if we are a little bit below it, it is not there is plenty of banks that are kind of between 6.5 and the 7. So I do not see it as a relative issue compared to others.

    Ebrahim Poonawala: Got it. And as we think through next year, you have so many initiatives going on Maybe if Bruce or Brendan, if you do not mind spending some time in terms of Matt coming on to the bank. Just the actions you have taken to sort of improve the consumer franchise over the last 5 years, if we can double click on either next or even outside of next, where's the opportunity within that consumer footprint as we think about the next couple of years?

    Brendan Coughlin: Yeah. So, Matt, it is been a excellent add to the team, and you have seen us reload the entire leadership team, in many ways over the last 12 to 18 months. And Matt certainly has been no exception to that. He has not had a huge impact as you know, our history around the consumer bank transforming it from a makeup of a bunch of acquired thrifts to 1 that has a really well fortified foundation with strong deposit base was our principal objective over the last 10 years and we did that.

    And then we turned our attention to the other side of the balance sheet to make sure the loan book was relationship oriented, higher yielding and driving accretion across all the other products and services And we have done that too as we run down all the non core parts of consumer that were helpful in our early days and now we are pivoting to more durable sticky revenue streams. And now when you look at the revenue streams coming in from consumer, you are seeing the quality of the deposit franchise, and now you are starting to see incredible growth in wealth management.

    We talk a lot about the private bank for wealth management, but we probably do not talk enough about is still about, 65% of our revenue streams in wealth management are coming from the part of the business that is connected to retail And that business is sales are up 30% to 35%. Year over year and that is directly as a result of the flight to quality as the focus on the consumer business on getting net primary banking households, the right mass affluent mix, we skew 3% to 4% to 5% higher.

    So as Matt takes a look at the business think we have got an incredibly strong foundation, but 1 that is still has a tremendous amount of opportunity. And that is where next really comes in as we are thinking about we talked a little bit about this last quarter, but there is a couple of lenses to it. 3 real ones. 1 is adding specialty job families that drive revenue accretion for mass affluent and affluent. So we are adding business bankers to the platform.

    We are adding private client bankers to the platform, which is really our version of private banking light, if you will, for the massive affluent customer that sits in the retail business and adding wealth managers to the platform. We have continued to do that every quarter adding 10 or so new wealth managers a quarter. And our sales force is up to approximately 450 wealth managers that sit in the in the retail branches We are going to continue to do that and drive revenue accretion depth and share of wallet. And then on the physical side, really there is 2 big things.

    And the goal here is to position us for long term outperformance on deposit growth, particularly low cost and household market share capture. So we are going to really do some further surgery to put the business in a position to get that growth. We are gonna take down some of our in-store franchises or physical points of presence replace those with much more impressive stand alone branches that are more oriented towards the mass affluent and affluent customer base that we have in retail.

    And then in some of our markets, I think we have the ability to identify as post COVID world settles and you will see us take the expense out of the in-stores and replace that with an investment in physical branches that will give us further operating leverage and outsized deposit growth down the road.

    So the mindset in the retail franchise is incredibly proud and confident in the foundation we built, but that positions us for the next round of growth going forward, which we equally have confidence in you will see us pull some different levers that should build a sticky durable set of revenues that we hope to have multiple accretion over time and allow us to do things in the commercial bank and the private bank to continue to have outsized growth in consumer with that granular deposit business.

    Aunoy Banerjee: And then, I would say you could already see it in some of our numbers, the wealth feed line that has been grown with the retail network in place and similarly on the deposit side. The structural deposit that we get with the DDA percentage that is really helpful. So you can see it already in our numbers coming through.

    Ebrahim Poonawala: that is good color. Thank you, both.

    Operator: Your next question comes from the line of Ken Usdin with Autonomous Research. Your line is now open.

    Ken Usdin: Hi, guys. Thanks. Good morning, everyone. I wanted to ask a follow-up on the deposit side. You mentioned in the slides that there were some seasonality in consumer. So end of period deposits were flattish on the interest bearing side and granted understanding the year over year growth, understanding the good DDA growth Just wondering like what that seasonality is because you had more wholesale funding relative to deposits this quarter? And does that kind of reverse or just talk us through kind of the trajectory of just overall deposit growth from here, especially on the interest bearing side and what that means for the wholesale funding on the flip?

    Bruce Winfield Van Saun: Yes, I am just going to start and I will quickly turn to Aunoy, but the fourth quarter Ken has always been seasonally strong for us, always in the commercial space. And so we think commercial will have very significant growth consistent with prior years. We also have the private bank as Brendan mentioned is growing at a good clip every quarter that will be additive. And then consumer I think also has a nice slug of seasonality in that. And so we would expect very strong spot deposit growth in Q4. And as I had said on a prior call, by the end of the year, we will have that FHLB advanced number, I think meaningfully reduced.

    And so I think that can come down into kind of low to mid single digit billion from 7 ish today. So that is kind of the overall headlines is to expect strong growth across all 3 quite confident in that we have good visibility into that but I will let Aunoy provide more color.

    Aunoy Banerjee: Yes, I think Ken to your point, we have. If you go back on the seasonality, you can see that in every last few years, you have seen the drop in seasonality in deposits in the third quarter in the consumer business and it comes back. Obviously, as Bruce mentioned, commercial comes back very nicely as we have year end deposit from our client. The biggest thing I would say is both under all the 3 businesses, we are we are gathering more operating accounts. They are not really just a rate driven exercise. So we are getting the actual operating and transactional accounts in our businesses. That actually helps to keep our deposits cost right.

    It actually helps to grow our DDA and low cost deposits. And as we have seen our low cost plus our DDA balances have been at 42% very steady as we have gone through. And that is what we expect to as we as we as we go through. And that keeps our deposit costs also in check as well.

    Ken Usdin: Okay. Okay. Great color. Thanks. I am gonna leave it there. Okay.

    Operator: Your next question comes from Daniel Tamayo with Raymond James. Your line is open.

    Analyst: Thank you. Good morning, everyone. Maybe first just on credit side, It looks like there was an increase in kind of the early stage commercial real estate delinquencies. If you could touch on that. And then just kind of bigger picture thoughts on the trends of overall credit and if you are expecting the allowance to continue to be able to trend down as it has for the last couple quarters? Thanks.

    Aunoy Banerjee: Yeah. So let me take that, Daniel. So on the overall credit, if you see our credit mix as the allowance is really driven by the mix shift that we have had in our book. So as we pull down CRE that has been coming down nicely. And what we have done is lower loss content C and I or residential secured website. So if you go back to some of our credit pages, you will see that underlying that our. it is just really the mix that is driving the ACL coverage ratio. So there is nothing there.

    And that as we will see how the mix evolves as we go through it, but that is how the driver bit. On the early stage delinquency on commercial, there are some probably some idiosyncratic issues on some model base, but there is nothing. We do not see any wide or any broad based credit issues. I do not know.

    Theodore C. Swimmer: I would say on our real estate book, it is it is going just as we plan it to. We are seeing some significant pay downs quarter over quarter as some of these deals mature and get refinanced out. But there is really no change in our real estate book versus where it was last quarter.

    Brendan Coughlin: And on the retail side, there is not a lot of new news to share with delinquencies are flat, no signs of stress. NCOs continue to modestly tick down over a longer term trend line and there is no signs of anything emerging that would take us off that track.

    Bruce Winfield Van Saun: Yeah. So to your point about, like, where does this go, I think the we have seen a steady decline in charge off rate as we have worked through the CRE office book that I would like to say the pig is almost through the python, but there is still a little more to go on that. So that will help drive the net charge off rate lower than it is now. So we expect that in Q4 and into 2027 even though I promised Erika I am not giving guidance on 2027, but we anticipate that trend to happen. And then the allowance should follow that.

    There should be an ability for the allowance to continue to dip a bit with the kind of mix shifts that Aunoy described, plus kind of the improvement in overall asset quality as we work through some of the remaining tail of that office book. Terrific. Thanks for that color. And then maybe just shifting to the private bank. I know you have talked a lot about it here, but I guess my question is around the profitability. Talked about 25% plus ROE in that business. Clearly, lending has been growing faster than deposit side, but you are coming from a stronger base in the deposit.

    But how do you think about any kind of shift in profitability over time as that continues to work through? Or do you have to start to match the loan growth to the deposit growth or deposit growth to the loan growth more as you get further along with this growth. Yeah. Of the private banking. So you know, 1 of the things that we are doing with the business is running it with a much lower loan to deposit ratio than kind of the way than the way it was set up at First Republic.

    This is kind of more discipline around credit and making sure it is to deep relationships and that we have changed that the product we are selling more is you know, the white glove service as opposed to we are offering discounted credit. And so that I think has helped set the stage for much higher kind of ROE business and what First Republic achieved overall. In their ROE. There is kind of catch up growth now. So we brought over deposits initially, let's bring over D and I and then eventually, you know, some of the lending will pick up and we have seen it pick up.

    And so when you are using more capital that has a potential to lower ROEs a little bit. And then also we are making a lot of investments that you know, follow a j curve. So when we are hiring all these people and bringing these teams in, you know, at the. In the outset, that is you know, harmful to the return level, but then as the revenues come in, that creates the kind of overall positive dynamic in terms of those returns. And so just being kind of very measured in terms of looking at-- we do not wanna have too many j curves going because that can depress our profitability.

    But we are gonna stage them very thoughtfully and prioritize things well I think that is been the secret as to how we have been able to get off to a high start and then sustain those levels. But at this point we do not see anything that would take us out of a 20 to 25 zone. But so there is possible that it drips down a little bit with kind of more a bigger lending book. And kind of continued build out particularly in markets like Florida and the Northeast where we still have more building to do.

    But in any case I think the discipline that we have had to run it with positive operating leverage be make tough choices set the right priorities, stage things so that we keep returns high. that is been on full display.

    Brendan Coughlin: The only 2 points I would make is, in addition to Bruce's is that know, we expect through the medium term for the business to still be self funding. And so while LDR is tightening a little bit, the business is still self funding itself both from an LDR standpoint and an LCR standpoint. We look at lendability of deposits. So to Bruce's point, perhaps ROEs tighten a tiny bit. It was a little maybe when we were outside the 2025 range in 2026 and 2027, and maybe it was a little artificially high. But there is. Even with that tightening dynamic, there is nothing we see that will take us out of that range of 20% to 25%.

    The other point, number 2, that I would make is as the wealth business catches up to scale Yep. That is a low capital intensive business. And when we built the private bank, we started with a heavier set of bankers and now we are starting to see the wealth managers come on the platform. And that should only accelerate in the future as we put greater focus on building out the wealth business. And catching up to the growth that we have had on the banking side. And each tightening, you see on the balance sheet should get offset.

    Now we will have some efficiency ratio tightening, right, because the 75% to 80% efficiency ratio business but very capital light and will drive RobertTCE accretion for the segment and for the company overall. Yep. Good point.

    Analyst: Well, thanks for the color, Bruce and Brendan, and thanks for taking my questions.

    Operator: Your next question comes from the line of Gerard Cassidy with RBC Capital Markets. Your line is open.

    Gerard Cassidy: Hey Bruce, how are you? Hi. Just following up on the private banking. Obviously, you guys have had really good growth You are pointing out the returns at 25% on capital. The question I have for you is that as you grow this into a national franchise, do you think mostly you are better identified net interest income has really been the driver of the revenue and earnings curve here? Do you envision as you become more national that more fee oriented businesses will contribute to the revenue mix? Yes.

    Brendan Coughlin: Thanks, Gerard. it is Brendan. We expect wealth to grow in an outsized way, and that will be primary driver of fee income coming through the private bank as you would expect. We have got maybe a high class problem to have here where the balance sheet and the attractiveness of the banking side of the has been so attractive to these clients that, we have grown that so fast. So you are you are seeing even though we are driving fee income up at a pretty healthy clip, it is been from a mix standpoint consumed by very, very strong balance sheet growth. So we are not going to be overly focused on managing to mix of revenue.

    If it is good business, we are gonna do it. But I do think over the medium to long term, you should expect the wealth business to play an even bigger role in there. We should see the fee proportion start to improve modestly over time, which kind of back to the last question has a positive improvement to ROTCE that will offset some of the tightening LDR dynamics.

    So, yeah, do I do expect it to improve, but strength of the banking business is so strong over the next 12 to 24 months, I would not expect radical improvements, but you should see steady growth in fee income in line or better than you know, the banking balance sheet over time. So anyway, we are very focused on the wealth piece of that business. And there is a natural progression too here when you have a bank owned private bank that you typically earn the clients relationship first on the banking and credit side. And then through earning that trust and starting to do financial planning, the wealth comes as a fast follower.

    And so that is a natural progression of client behavior and also our hiring practices as we built the wealth business. So it is a heavy focus and we project to see steady progress there.

    Aunoy Banerjee: And Wells has a broader halo effect across the franchise. So we are also seeing that in our consumer business as well through a retail network as well.

    Gerard Cassidy: Very good. And then just as a follow-up to some of the commercial loan questions earlier in the past, Obviously, you guys have pointed out that commercial real estate came down planned reductions there. But on the C and I side, you mentioned that demand is still there. Can you share with us, are you seeing more competition there, whether just adjusting returns that may not meet your hurdles or what are you seeing inside the CMI portfolio where there was some softness in this quarter in terms of growth?

    Theodore C. Swimmer: So to Bruce's point earlier, there is always stiff competition whenever we do a transaction. We are continuing to focus on being the left lead, the primacy of the account. And where we cannot get that business we tend to shy away. In the third quarter, in our in our corporate credit business, we moved out of $400 million of assets because we just could not make a good return and we are not building loans just for asset for a loan growth perspective.

    We are seeing plenty of opportunities now with what we developed throughout our entire commercial bank to have opportunities to not win on price, but to win on advisory work and winning on providing good strong advice to our company. So competition is stiff, it will remain stiff, but I do not think it is going to have a material impact on what we are doing.

    Aunoy Banerjee: And, Jared, I would say spreads for the last couple of quarters have stabilized. Very good.

    Gerard Cassidy: Thank you, gentlemen.

    Bruce Winfield Van Saun: Got 1 more.

    Operator: Yes, we do have 1 more question that is from Matthew Breese with Stephens Incorporated. Your line is open.

    Matthew Breese: Good morning, everybody. Hi. I was hoping you could talk a little bit about how higher rates have impacted or yet to impact kind of prepay and payoff activity in commercial real estate space? I would assume that it slows down, but I am curious if expectations have met reality at this point.

    Theodore C. Swimmer: To this point, it has not. We have done an analysis of our real estate book of where we think the higher rates can impact us. I think long story short, we think somewhere in the neighborhood of $400 million after all the analysis we did, but that is about as much as we see potentially being delayed because of higher rates at this point. We do not think it is going to have a material impact otherwise.

    Matthew Breese: Okay. And then, Aunoy, 1 for you. Do you have handy what the period end cost of deposits were? And just curious what your expectations are for deposit cost increases over the next couple of quarters with 1 more Fed hike in your assumptions?

    Aunoy Banerjee: Yeah. We. So as I said, like, we if you think of it, deposit cost is 1 more rate hike probably more in towards in the December range if you think of the Fed rate hike, Some of the rate hikes will. They have been. When you. It depends on which part of the book of deposits get repriced. Commercial gets repriced almost immediately. it is contractual. On the private bank as well as consumer gets over time. So there is a little bit of lag we see. Now what happened is you also saw the rate hike in the third quarter happened in September, so that will catch up. You also see loans catching up.

    Most of our loan book is floating rate, so loans will up as well as we go through loans are generally on a lag. So all these things starts to layer in. So think it is hard to pinpoint on period ends, but I would say like that.

    Bruce Winfield Van Saun: That. And I think we go back to the earlier answer where on the retracement up, if there is 3 hikes that was kind of a 49 or high 40s. Beta. First on the way down, then on the way up and then on the way down. And so in that ballpark is something that we would manage to I think over the next however many hikes there are.

    But I did at a conference in September I mentioned the timing of the hike would start to move deposit costs higher, but commercial loans would as Aunoy said reprice right away, but then some of the consumer loan categories are tied to rates and do not move until the fourth quarter. So given that we are asset sensitive, notwithstanding the fact that your deposit costs are going to go up, your loans are going to go up more and I called that out at probably a 1 basis point tailwind to Q4, which I think is still kind of in the ballpark.

    So a lot will depend exactly kind of when the hikes happen, but being asset sensitive, we will see a net benefit from the upcoming moves.

    Matthew Breese: Got it. Okay. Thank you. I will leave it there. Appreciate it.

    Bruce Winfield Van Saun: Good. All right. Thanks for dialing in today and asking some great questions. We appreciate your interest and support. Have a good day, everybody.

    Operator: Thank you. That does conclude today's conference call. Thank you for your participation. You may now disconnect.

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