Brendan Coughlin: I think it’s well said. I won’t repeat it. I just would reiterate that I think the performance in Q4 is in line with what we would have hoped for in terms of the financial profile to drive that type of return over time. Obviously, more loan growth on the come and a lot of it will come down to our ability to drive wealth at scale and recall our targets end of 2025 are $11 billion in deposits, $9 billion in loans, and $10 billion in AUM. So if we deliver that profile, the kind of expense composition, the profitability profile we’re seeing so far is aligned with that return. So we’re going to work hard to deliver it and hopefully our performance from Q4 sustains in the first half.
Gerard Cassidy: Very good. And then following up, Bruce, maybe some thoughts from your perspective on what we might see in this Basel III endgame. Obviously, there’s a lot of talk about scaling it back and maybe it’s going to be a delayed implementation because of all the changes. There’s a big focus, as you know, as we all know, on the operating risk in the capital markets businesses. But for the regional banks, it seems like it’s more that numerator including the unrealized bond losses than the available for sale portfolio. But any thoughts for Citizens, how you might benefit from a scale back of what was initially proposed and what will be the final proposal?
Bruce Van Saun: Yeah, I would say that for banks of our size, the things that we’ve focused the most on have been RWA increases to certain lending activities that would potentially reduce the supply, the appetite to lend in those areas because it would erode the economics. So things like mortgage lending to lower income people or credit card lines attracting capital and small business lending attracting more capital. I think those flaws in the proposal have been well chronicled. And even though they don’t result in a meaningful RWA inflation for us, I mean, we’re stewards of the US economy and we’d like to see those things adjusted. That’s been for kind of banks our size. I think the kind of main thing at top of the list, I think the operational risk kind of increases affect the bigger banks more, but nonetheless they seem to have a fairly big bump on the scale.
And so that likely, I think, will have a rethink. And maybe those come down to some extent. That would benefit everybody, but probably the big banks more than banks like ourselves.
John Woods: Yeah, and maybe just add — just a quick add to that is that even if the Basel III endgame had gone through as initially proposed, a very modest impact from an RWA standpoint on us. And as it relates to AOCI, as we mentioned earlier, we’re expecting that likely survives. But in our case, we’re at 9% by deducting the AOCI opt-in, and that’s an incredibly strong number. So we sort of think about what’s going on there is really behind us and really in the run rate, if you will, when it comes to that.
Bruce Van Saun: I think that’s a good point that John just raised, Gerard, is that given the strength of our capital position both pre- and post-AOCI, we can absorb any of these regulatory capital impacts, but really not worry about them. Many of our peer banks are still kind of catching up and getting in position and having to kind of hold back on capital distribution which is really not something that we’re worried about given this capital strength. So we’re more able to kind of play offense and not have to play catch up, which is a good position to be in.
Gerard Cassidy: Absolutely. In fact, Bruce, you bring up a good point in your guidance on the median term for the total company, legacy, core, ROTCE of 15% to 17% percent. You guys point out significant share repurchases. Should we interpret that to be a combined dividend payout and buyback ratio of 100% percent of earnings, then once we get the final rules and we’re all set to go? Is that a fair number to [put] (ph) for you guys because you are well-capitalized?
Bruce Van Saun: That’s right, if you go back to the time of the IPO and the number’s been over 100% and under 100% and all over the place, but if you just looked at like a 10-year average, almost 10 years, it’s about 75%. And so having enough capital to actually grow your business and lend to customers, you have to certainly work that into the equation. But to the extent, as John stated the priorities, dividend is number one, using capital to support organic growth principally in the loan book and then repurchasing shares. I think if we get our returns into that level, we’ll be returning high levels of our earnings back to shareholders both through the dividend and through consistent share repurchases. We should be viewed as a capital return story.
John Woods: Yeah, and I think we had a 95% capital return with performance in ‘23, so it’s in that 75% to 100% range over time.
Gerard Cassidy: Thank you. Appreciate the color.
Operator: And your next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is now open.
Manan Gosalia: Hi, good morning. Just to follow up to the down beta question on deposits, a few of your peers have talked about how commercial deposit rates are coming down or would come down quickly, but there’s likely to be some more pressure on the consumer side continuing from here. They’ve talked about basically consumers still moving towards high rate accounts. And given that you do have a big core consumer deposit franchise, I was wondering what you’re seeing right now and what your expectations are on consumer behavior as rates come down?
Bruce Van Saun: Brendan, you want to take that?
Brendan Coughlin: Yeah, sure, I’ll take that. Well, let me start big picture and then give you a little color on Q4 and expectations. So we’ve been talking for years that the investments we’ve made in transforming the consumer deposit base have truly been transformational for our performance. And I think that’s what we’re seeing here now that our consumer book is performing. At a worse case, peer-like, but certainly there are signs that we may be outperforming peers. We look at benchmarking. Our DDA balances were almost 300 basis points better than peer average this year, or last year rather, in 2023. And our net deposit growth was actually a couple hundred basis points better than peers as well, while our betas have been modestly better.
So you look at that equation, better deposit growth, better beta, really grounded with an outperformance in DDA. That’s a good place to be, and I expect regardless of what consumer behavior conditions we face in 2024 for our relative outperformance to sustain, and we’re seeing those signs already. Having said that, on an absolute basis, what we saw in Q4 was a slowdown in consumers’ deterioration and excess stimulus. It’s still going on a path of normalizing, so we’re still seeing that continue, but the pace of normalization has begun to slow and I think we should see that sustain in the first half of the year as rates start to tick down. On the interest-bearing side, competitive dynamics haven’t really shifted yet. It’s still fairly aggressive out there on CDs and money markets, but we believe we’ve got more levers than most with Citizens Access as a platform where we can contain interest bearing growth on the higher cost side, not put contagion, so to speak, into the full retail bank to reprice all of our interest bearing deposits gives us a real competitive advantage.
