Citizens Financial Group, Inc. (NYSE:CFG) Q4 2023 Earnings Call Transcript

Citizens Financial Group, Inc. (NYSE:CFG) Q4 2023 Earnings Call Transcript January 17, 2024

Citizens Financial Group, Inc. misses on earnings expectations. Reported EPS is $0.34 EPS, expectations were $0.6. Citizens Financial Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the Citizens Financial Group Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Keeley, and I’ll be your operator today. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a brief question-and-answer session. As a reminder, this event is being recorded. Now, I’ll turn the call over to Kristin Silberberg, Executive Vice President, Investor Relations. Kristin, you may begin.

Kristin Silberberg: Thank you, Keeley. Good morning everyone and thank you for joining us. First this morning, our Chairman and CEO, Bruce Van Saun, and CFO, John Woods, will provide an overview of our fourth quarter and full year 2023 results. Brendan Coughlin, Head of Consumer Banking, and Don McCree, Head of Commercial Banking, are also here to provide additional color. We will be referencing our fourth quarter and full year earnings presentation 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 on Page 2 of the presentation.

We also reference non-GAAP financial measures, so it’s important to review our GAAP results on Page 3 of the presentation, and the reconciliations in the appendix. And with that, I will hand over to Bruce.

Bruce Van Saun: Thanks, Kristin. Good morning, everyone, and thanks for joining our call today. 2023 was an incredible year in many respects. With the Fed’s aggressive moves to subdue inflation, the West Coast bank failures, a surprisingly resilient economy, and several significant proposals from bank regulators, it was important in navigating this dynamic environment to focus first on playing strong defense while continuing to play disciplined offense and take advantage of opportunities in the market. Defense starts with the balance sheet and risk management, and I feel really good about how we ended the year. Our capital position is one of the strongest among the large regionals with a CET1 ratio of 10.6%, CET1 adjusted for AOCI of roughly 9% and a tangible common equity ratio of 6.7%.

Our liquidity position is at an all-time best with a loan to deposit ratio of 82%, pro forma Category 1 LCR of 117% and 156% liquidity coverage of our uninsured deposits. Our ACL ratio is at 159% compared to 130% pro forma day 1 CECL, and general office reserves are at 10.2%. We continue to be very disciplined in terms of lending risk appetite and are focused on deep relationships which deliver stronger relative returns. We are using a non-core strategy to run off loans and free capital for better opportunities. On offense, we have several important initiatives we are driving, such as the private bank buildout, the New York City Metro initiative, our focus on serving private capital and growing our payments business. These are all tracking well.

In particular, we are pleased to see the private bank team reach $1.2 billion in deposits soon after our launch in late October. Our financials over the course of the year came under some pressure, primarily given higher funding costs. Nonetheless, we delivered a 13.5% underlying ROTCE for the full year, with a 95% return of capital to shareholders through dividends and share repurchases. In the fourth quarter, we continued to see smaller sequential declines in NII than in the prior quarter as the Fed last hiked in July and the pressure on funding costs has lessened. We saw a modest bounce back in fees, but are very encouraged by the tone of the markets in 2024 to date. Hopefully, we start to see our big capital markets pipelines begin to deliver.

We took some meaningful cost actions in Q4 to set the stage for a very modest expense growth in 2024. We only had the private bank for two quarters, so if you normalize for that, we’re actually reducing the legacy expense base by 1.4%. I should reinforce though that we are doing this while protecting our critical initiatives. Credit outlook continues to track expectations. CRE general office is being carefully managed. Losses are being absorbed in net charge offs. It’s relatively predictable with few surprises so far. Away from that, credit quality is strong. In Q4 we saw a dip in absolute criticized loans and in the ratio which is a promising sign. On the capital front, we did not buy in any stock in Q4, given the charges related to the FDIC special surcharge as well as associated with our cost initiatives.

We expect to be back in the market in Q1, and for that to continue through 2024. Turning to our outlook, we expect NII to continue with modest declines through midyear and then start to tick up. The exciting news on NIM/NII is that we project meaningful benefits from swap and noncore runoff over ‘25 to ‘27, which will power higher EPS and returns. We are poised for strong fee growth led by capital markets. Net charge offs will rise modestly, but we are likely to see ACL releases over the course of the year. Our key priorities for 2024 will be to continue to operate with a strong defense/prudent offense mindset. We have many exciting things on our technology, our digital, data analytics and AI roadmap that we need to deliver on. It’s an exciting time for Citizens.

We feel we are well positioned for medium-term outperformance. I’d like to end my remarks by thanking our colleagues for rising to the occasion and delivering in great effort in 2023. We know we can count on you again in the new year. With that, let me turn it over to John.

John Woods: Thanks, Bruce, and good morning, everyone. I’ll start out with some commentary on 2023. We demonstrated excellent balance sheet strength while delivering solid financial performance. We were resilient through a turbulent environment, benefiting from near top of peer group capital levels and strong liquidity based on stable consumer insured deposits and diversified wholesale funding sources. This strength allowed us to execute well against our multi-year strategic initiatives while opportunistically building out the private bank. On Slide 6, you can see that we delivered underlying EPS at $3.88, which included a $0.51 drag from non-core, and an $0.11 investment in the private bank. Full year ROTCE was 13.5% after incorporating these items.

Before I discuss the details of the fourth quarter results, here are some highlights referencing slides 4, 5, and 7. On the slides you can see we generated underlying net income of $426 million for the fourth quarter and EPS of $0.85. This includes $0.06 for our continued investment in the startup of the private bank and a $0.15 negative impact from the non-core portfolio. We had a significant increase in the impacts from notable items this quarter included on Slide 4. The largest driver was the FDIC special assessment, followed by elevated top and severance related expenses attributable to meaningful headcount reduction. Our underlying ROTCE for the quarter was 11.8%. Our legacy core bank delivered a solid underlying ROTCE of 14.8%. Currently, the private bank startup investment is dilutive to results, but relatively quickly this will become increasingly accretive.

The private bank is off to a very good start, raising about $1.2 billion of deposits through the end of the year, of which more than 30% are non-interest bearing. While our non-core portfolio is currently a sizable drag to results, it continues to run off, further bolstering our overall performance going forward. We ended the year with a very strong balance sheet position with CET1 at 10.6% or 9% adjusted for the AOCI opt-out removal and an ACL coverage ratio of 1.59%, up from 1.55% in third quarter. This includes a robust 10.2% coverage for general office, up from 9.5% in the prior quarter. We continued to build liquidity during the fourth quarter, achieving our planned liquidity profile. Our pro forma Category 1 bank LCR rose to 117% from 109% in the prior quarter.

We also reduced our period end flood borrowings by $3.3 billion quarter-over-quarter to $3.8 billion, and our period-end LDR improved linked quarter to 82% from 84%. Regarding strategic initiatives, as previously mentioned, the private bank is off to a great start and TOP continues to contribute. In addition, New York Metro is tracking well, and we are poised to capitalize on the growing private capital opportunity. Next, I’ll talk through the fourth quarter results in more detail, turning to Slide 8 and starting with net interest income. As expected, NII is down 2% linked quarter, primarily reflecting a lower net interest margin, partially offset by a 2% increase in average interest earning assets. As you can see from the NIM walk at the bottom of the slide, the combined benefit of higher asset yields and non-core runoff were more than offset by higher funding costs and swaps, the net impact of which reduced NIM by 3 basis points to the 3% level.

The additional 9 basis point decline to 2.91% was due to the impact of our liquidity build which was neutral to NII. Our cumulative interest-bearing deposit beta increased a modest 3 basis points to 51%, as the Fed has paused and we see continued but slowing deposit migration. We expect this moderating trend to continue until the Fed eventually cuts rates. Overall, our deposit franchise has performed well with our beta generally in the pack with peers. This is a significant improvement compared to prior cycles when our beta experience was at the higher end of peers. Moving to Slide 9. Fees were up 2% linked quarter given improvement in capital markets and a record performance from wealth. These results were partially offset by lower mortgage banking fees.

The improvement in capital markets reflects increased activity with the decline in long rates in November driving a nice pickup in bond underwriting. Equities improved with strength in the back half of the quarter as the environment became more favorable. M&A advisory fees benefited from seasonality and an improvement in the environment given the better macro and rates outlook, although several transactions pushed to Q1. We see capital markets momentum picking up in Q1 as markets are positive and our deal pipelines are strong. The wealth business delivered a record quarter with higher sales activity and good momentum in AUM growth. The decline in mortgage banking fees was driven by lower production fees as high mortgage rates continued to weigh on lot volumes.

The servicing operating P&L improved modestly while the MSR valuation, net of hedging, was lower. On Slide 10, we did well on expenses which were down slightly linked quarter even while including the impact of the continued private bank startup investment. Our reported expense of $1.61 billion increased $319 million, including notable items totaling $323 million, namely the industrywide FDIC special assessment of $225 million, and the impact of taking cost reduction actions to adjust our expense base heading into 2024. I’ll discuss that in more detail in a few minutes. On Slide 11, average loans are down 2% and period end loans are down 3% linked quarter. This was driven by non-core portfolio runoff and a decline in commercial loans which were partly offset by some modest core growth in mortgage and home equity.

Average core loans are down 1%, largely driven by generally lower loan demand in commercial, along with exits of lower returning relationships and our highly selective approach to new lending in this environment. Average commercial [line] (ph) utilization continued to decline this quarter as clients remain cautious and M&A activity muted in the face of an uncertain market environment. Next on slides 12 and 13, we continued to do well on deposits. Period end deposits were broadly stable linked quarter with an increase in consumer driven by the private bank offset by lower commercial. The decline in commercial deposits was driven by a proactive effort to optimize the liquidity value of deposits, running off approximately $3.5 billion of higher cost financial institution and municipal deposits during the fourth quarter.

Absent this BSO effect, deposits would have been up by about 1.5% this quarter. Our interest-bearing deposit costs are up 19 basis points, which translates to 51% cumulative beta. Our deposit franchise is highly diversified across product mix and channels with 67% of our deposits in consumer and about 71% insured or secure. This has allowed us to efficiently and cost effectively manage our deposits in the higher rate environment. With the Fed holding steady, we saw continued migration of deposits to higher cost categories with noninterest bearing now representing about 21% of total deposits. This is slightly below pre-pandemic levels, and we expect the pace of migration to continue to moderate from here, although this will be dependent on the path of rates and customer behavior.

Moving on to credit on Slide 14. Net charge-offs were 46 basis points, up 6 basis points linked quarter. We were pleased to see that commercial charge offs were stable linked quarter, and we also saw a modest decline in criticized loans, as we continued to work through the general office portfolio. We saw continued normalization of charge offs in the retail portfolio along with seasonal impacts. Turning to the allowance for credit losses on Slide 15. Our overall coverage ratio stands at 1.59%, which is a 4 basis point increase from the third quarter, primarily reflecting the denominator effect from lower portfolio balances. We increased the reserve for the $3.6 billion general office portfolio to $370 million which represents a coverage of 10.2%, up from 9.5% in the third quarter, as we made modest adjustments to modeled loss drivers.

We have already taken $148 million in charge-offs on this portfolio, which is about 4% of loans. On the bottom left side of the page, you can see some of the key assumptions driving the general office reserve coverage level. We feel these assumptions represent an adverse scenario that is much worse than we’ve seen in historical downturns, so we feel the current coverage is very strong. Moving to Slide 16, we have maintained excellent balance sheet strength. Our CET1 ratio increased to 10.6% and if you were to adjust for the AOCI opt out removal under the current regulatory proposal, our CET1 ratio would be about 9%. Also, our tangible common equity ratio improved to 6.7% at the end of the year. Both our CET1 and TCE ratios have consistently been in the top quartile of our peers, and you can see on Slide 36 in the appendix where we stand currently relative to peers in the third quarter.

We returned a total of $198 million to shareholders through dividends in the fourth quarter. We paused our share repurchases in the fourth quarter in light of the FDIC special assessment. Having exceeded our target capital level for year end, we expect to resume repurchases in the first quarter. Nonetheless, we plan to maintain strong capital and liquidity levels that fortify our balance sheet against macro uncertainties and position us to quickly transition to any new regulatory rules that may impact banks of our size. On the next few pages, I’ll update you on a few of our key initiatives we have underway across the bank, including our private bank and our ongoing balance sheet optimization program. First, on Slide 17, the buildout of the private bank is going very well and clearly gathering momentum.

Following our formal launch in the fourth quarter, our bankers have raised more than $1.2 billion of attractive deposits, with roughly 75% of that from commercial clients. This is a coast-to-coast team with a presence in some of our key markets like New York, Boston and places where we’d like to do more, like Florida and California. We have plans to open a few private banking centers in these geographies, and we are opportunistically adding talent to bolster our banking and wealth capabilities, with our Clarfeld Wealth Management Business as the centerpiece of that effort. Moving to Slide 18, you are all well aware of our efforts in New York Metro. That’s going really well, and we are hitting our targets there. And on the commercial side, as I mentioned before, we are starting to see momentum building in capital markets.

This should translate into a meaningful opportunity for us as the substantial capital backing private equity gets put to work. Next on Slide 19, we continue to be disciplined on expenses. It’s important to remember that a key to Citizens’ success since our IPO has been our continuous effort to find new efficiencies and then reinvest those benefits back into our businesses so we can serve customers better. We’ve effectively executed our TOP 8 program, achieving a pretax run rate benefit of about $115 million at the end of 2023. And we’ve launched TOP 9 with a goal of an exit run rate of about $135 million of pretax benefits by the end of 2024. The new TOP program is focused on efficiency opportunities from further automation and the use of AI to better serve our customers.

We are executing on opportunities to simplify our organization and save more on third party spend as well. Last year, we exited the auto business, and we also exited the wholesale mortgage business in the fourth quarter. We are also adjusting our expense base through further meaningful actions. In the fourth quarter, we reduced our headcount by about 650, or approximately 3.5%, and we have also taken a hard look at our space needs and are rationalizing some of our corporate and back-office facilities. Given all this work, we are targeting to limit our underlying expense growth in 2024 to roughly 1% to 1.5%, with a net decrease in legacy Citizens expenses of 1.3% to 1.5%, being offset by investments in the private bank. Playing prudent defense is at the top of our priority list given the challenging year we saw with the turmoil that began back in March and the uncertain macro outlook.

So, we are reworking both sides of the balance sheet through our balance sheet optimization efforts. Slide 20 provides an update on our efforts to remix the loan portfolio through our non-core strategy and optimization on the commercial side with a focus on relationship based lending and attractive risk adjusted returns. On the left side of the page, you’ll see the relatively rapid rundown of the remaining $11 billion non-core portfolio, which is comprised of our shorter duration indirect auto portfolio and purchased consumer loans. This portfolio is expected to decline by about $6.4 billion from where we were at the end of the year to about $4.7 billion at the end of 2025. And as this runs down, we plan to redeploy the majority of remaining cash paydowns to a reduction in wholesale funding, with the remainder used to support organic relationship-based loan growth in the core portfolio.

The capital recaptured through reduction in non-core RWA will be primarily reallocated to support attractive growth in retail and commercial lending through the private bank. In the broader consumer portfolio, we are targeting growth in the home equity, card and mortgage, which offer the greatest relationship potential. Moving to the right side of the page, we are also working on the commercial portfolio, exiting lower return credit only relationships and focusing on selective C&I lending with multi-product relationship opportunities. We are leading more deals in our front book, improving spreads while also improving the overall return profile of the book. In the appendix, we have included more information covering the broad contours of our BSO program, including how we are managing our high-quality deposit book, remixing our wholesale funding, managing our securities portfolio and positioning our capital base against the backdrop of a changing macro and regulatory environment.

Moving to Slide 21, I will take you through our full year 2024 outlook, which contemplates the early January forward curve and a Fed Funds rate of 4.25% by the end of the year. We expect NII to be down 6% to 9%, with changes in our swaps book contributing to about half of that decline, and average loans down roughly 2% to 3%. However, we expect spot loan growth of 3% to 5%, with private bank growing over the course of the year and commercial activity picking up in the second half. On the deposit side, we expect spot growth of 1.2% — I’m sorry, 1% to 2% and well controlled deposit costs with a terminal beta in the low 50s, before rate cuts are anticipated to begin in May. We expect our net interest margin to trough around the middle of the year and average in the 2.8% to 2.85% range for the full year, and we expect to exit the year around 2.85%.

We’ve included Slide 23, which shows the expected swaps and non-core impact through 2027. In 2024, we expect higher swap expense to be partly offset by the NII benefit from the non-core rundown. You’ll find a summary of our hedge position in the appendix on Slide 38, which demonstrates how the 2024 headwind, which is incorporated in our 2024 NII guide, reverses to a substantial NII tailwind in 2025 and beyond, as the current forward curve is realized. For example, there is an expected improvement in NII contribution from swaps in 2025 year-over-year of approximately $371 million with continued meaningful benefits in 2026 and 2027. Non-interest income is expected to be up in the 6% to 9% range depending upon market environment, led by a nice rebound in capital markets.

We expect expenses to be up about 1% to 1.5%. Excluding the private bank, this would be down 1.3% to 1.5%. We have provided a walk showing the components of our 2024 expense outlook on Slide 22 to provide more context. NCOs are expected to average about 50 basis points for the year as we continue to work through the general office portfolio and expect further normalization in retail. Given macro trends, our remixing of the balance sheet through commercial BSO and the non-core strategy and expectations for modest portfolio growth, we will likely see ACR releases over the course of the year. We plan to resume share repurchases in the first quarter in the $300 million range with more over the course of the year depending upon market conditions and loan growth.

Taking that into account, we still expect to end the year with a strong CET1 ratio of about 10.5%, which is at the upper end of our target range. Putting it all together, we expect to return to sequential positive operating leverage in the second half of the year with PPNR troughing in the second quarter 2024. Moving to slides 24 and 25, as Bruce mentioned, we are well positioned to deliver attractive returns. As we look out over the medium term, we have a clear path to achieve a 16% to 18% ROTCE. We expect to generate solid returns from our legacy core business with a substantial NII tailwind given swap portfolio runoff. We expect to deliver positive operating leverage with strong expense discipline and we are well positioned to grow fees meaningfully given the investments we’ve made in our capabilities over the past few years.

We also expect a meaningful contribution from the private bank as it matures and a tailwind from the runoff of the non-core portfolio as we redeploy that capital and liquidity. We will continue to operate with a prudent risk appetite and focus on returning a meaningful amount of capital to shareholders through our repurchase program and targeting a dividend payout of 35% to 40%. Over the medium term, we expect our CET1 ratio to remain within a target range of 10% to 10.5%, about 50 basis points higher than our prior target range, given continued uncertainty in the macro environment. On Slide 26, we provide the guide for the first quarter. Note that the first quarter has seasonal impacts due to lower day count impact on revenue as well as taxes on compensation payouts impacting expenses.

To wrap up, we demonstrated the resilience of the franchise and maintained strong discipline in 2023 as we worked to position the bank to continue to deliver attractive returns to shareholders over the medium term. We delivered solid results this quarter and we ended the year with a strong capital, liquidity and funding position that puts us in an excellent position to drive forward with our strategic priorities and take advantage of opportunities that may arise. We are continuing to optimize the balance sheet and we are focused on allocating capital where we can drive deeper relationship business and improve performance over the medium term. With that, I’ll hand it back over to Bruce.

Bruce Van Saun: Okay. Thank you, John. Keeley, let’s open it up for Q&A.

See also 30 Smallest Countries In The World By Population and Land Area and 10 Dividend Aristocrats That Slashed Their Dividends.

Q&A Session

Operator: Thank you, Mr. Van Saun. We are now ready for the Q&A portion of the call. [Operator Instructions] Your first question will come from the line of Peter Winter with D.A. Davidson. Your line is now open.

Peter Winter: Good morning.

Bruce Van Saun: Good morning.

Peter Winter: Can you guys provide some color on the drivers to that spot loan growth, including some details about the contribution from the private bank and what you’re thinking in terms of commercial line utilization?

John Woods: Yeah, I’ll just start off and others can add. But I mean I think those are the two drivers, as you mentioned. When we look out into primarily the second half of 2024, we are seeing an expectation that commercial activity will pick up. Loan utilization is flattening out here, we expect early in the year. And then so that’ll be part of the driver. We also have had some BSO activity in late ‘23 and early ‘24 that we expect to moderate in the second half of the year as well. So you’re going to see a number of nice tailwinds on the commercial side. And then on the consumer side of things, we are seeing opportunities with good relationship business in the mortgage space and in HELOC, which has been a very nice and consistent driver for us.

But those are the main drivers. Then, of course, broadly, the private bank, which has gotten off to a great start on the deposit side of things in late ‘23, we’re going to see some of that loan opportunity pick up in ‘24. So those are the big, I would say, components of seeing that spot loan growth.

Bruce Van Saun: Maybe, Brendan, you could talk a little bit about what you expect for private bank lending.

Brendan Coughlin: Yeah, sure. Well, I would start by — just a quick comment on Q4 for the private bank. Obviously, strong deposit print and I think demonstrating that the strength of the strategy can be very diversified and led by wealth and deposits and not necessarily requiring low interest lending to dislodge the relationship. So we’re really excited about the print and the start by the team. Having said that, we do expect lending to pick up steam in 2024. Given the interest rate environment, mortgages are obviously challenged on the retail side. So the lending has been more heavily led by commercial lending, which has skewed in the private equity and venture space, which we’re really comfortable with the risk appetite and the profile of that business.

And it’s been critical to start to dislodge personal private banking relationships from the ecosystem of private equity and venture. So we’re off to a really good start. I suspect, given the forward curves, that the first half of the year will continue to be led by commercial principally and private equity and venture lending. Over time, we expect the loan book to be much more balanced and have more retail lending, home equity lending, mortgage lending coming in at scale as the rate environment dictates opportunities there. We also expect to lean into partner loan programs to help connect the corporate side of private equity venture with private banking and personal banking. So you’ll start to see an asset diversification over time, but the first half of the year, we would expect it to still be more heavily weighted on the corporate side.

Bruce Van Saun: Okay. Great. Don, anything to add on the commercial side?

Don McCree: Yeah. I think if you look back at the fourth quarter, the things that dampened our loan growth a little bit were it’s about 50% utilization, 50% BSO with a little bit of bond execution sprinkled in there. So people that were carrying slightly higher balances on the commercial side, a lot of them went to the bond market when rates kind of backed off in the last six weeks of the year. And that’s continued into this year. So I think the particular area that we’re excited about as we get into the back end of 2024 is the private equity space. I mean, that group of clients has been basically dormant for almost two years. There’s lots of conversations going on. We’re hearing from most of those customers that they expect to get a lot more active and that’ll drive utilization on our capital call lines, which is at an all-time low right now. So, I think that’s what the real driver is.

Bruce Van Saun: Great. Peter, did you have another question?

Peter Winter: Yes, just a quick follow-up. That’s helpful. But on just the fee income, you talked about up to 6% to 9%. You did mention, the pipeline is strong for the capital markets, but just if you could give some color on the puts and takes on the fee income side.

Bruce Van Saun: John?

John Woods: Yeah, just kind of the main drivers of that. It’s basically a continuation of some of the trends we’re seeing in the fourth quarter of 2023, where capital markets is starting to pick up again, pipelines are incredibly strong. And I think that the lead driver seems to be M&A advisory. That’s picked up in 4Q, not only due to seasonal factors, but just in terms of a more constructive backdrop. We’re also seeing, as you get in — out into ‘24, pick up and underwriting, both on the bond side and on the equity side, and so — and solid contributions from global markets as well. But — so those are some of the drivers as we see them beginning in Q4, continuing in Q1 with excellent pipelines and playing out over the rest of ‘24.

Bruce Van Saun: You might add something on wealth, Brendan. I don’t know if you want to. We expect continued really strong growth on wealth fees.

Brendan Coughlin: We do, and we spent a year of slow and steady progression continuing to get all-time highs in the wealth management business. But given the private bank investment, 2024 is going to be a really important year. We’re out in the market looking to attract a lot of talent. We’ve made a number of key hires in Q4, both on the leadership side as well as at the advisor side. And so getting the ecosystem of the bankers that we hired in the summer, connected with top and market wealth managers is critical for us. We’re rebranding the platform to Citizen private wealth management to connect the private banking and wealth side together hand in glove. And so we do expect steady and significant growth out of wealth over time really connected into the private banking ecosystem. So we’re pleased with the momentum, but there’s a lot more to come and we hope if we execute well on the private banking initiative.

Bruce Van Saun: Okay, very good.

Peter Winter: And just on mortgage banking.

Brendan Coughlin: Yeah, so John hit some highlights on Q4 for mortgage. Production was down a bit. Our underlying servicing business was up modestly. And then our hedge performance was down over a big quarter in Q3, Q4. I think as we look the outlook going forward, we obviously announced the exit of the wholesale mortgage business. If you rewind the clock back to prior to the Franklin American acquisition, we were under scale in mortgage and really were trying to diversify the business. We’ve done that really successfully in hindsight. It was an incredibly well-timed acquisition and we performed exceptionally well through the COVID years. And as we exit that period of time and look forward, our MSR concentration versus peers is really strong.

It’s a little bit on the high side. We looked at our business model and said, wholesale mortgage, we’re one of the only lenders in there. The margins were really challenged and the outlook for rates don’t necessarily suggest a [boom lift] (ph) of refi activity in the medium term. And so wholesale mortgage being a non-relationship business, we decided that it was time to move on and we’re committed to correspond it. We’re really committed to retail mortgage for relationship lending. But despite rates coming down, we do expect the mortgage market to be, call it, a $2 trillion originations platform in 2024, which is about a normalized mortgage market. So we should see some modest uptick in originations. And with rates coming back down, the servicing business might see a little bit of offsetting pressure.

So I think we feel like we’re in the right zone in terms of mortgage performance with where we’re at Q4, within a range of normal volatility. And we’re going to make sure that we’re executing on driving up returns higher and making sure allocating balance sheets to deep relationship based customers, whether it’s in the private bank or in the core retail business, to continue to offer that product to our very best customers.

John Woods: Yeah, just to wrap it all that up, in ‘24 we do expect volumes to improve as well as margins. So that’s another tailwind if we get into next year in terms of the production business.

Bruce Van Saun: Okay. Thank you, Peter. Next question.

Peter Winter: Thanks a lot.

Operator: Next question will come from the line of Matt O’Connor with Deutsche Bank. Your line is open.

Matt O’Connor: Good morning. Can you guys elaborate a bit on the expense cuts that you did this quarter in terms of where they’re coming from? And obviously you’re leaning in on the private bank, but kind of ex that, have you made sure you’re not cutting too much during these initiatives and the ones that you’ve had in prior years?

Bruce Van Saun: Yeah. I’ll start off here. But I think we have been very, very diligent in kind of looking at staffing levels across all the different activities in the bank and seeking efficiencies. There’s always the playbook where if you kind of eliminate your bottom X percent of performers and redistribute some of the work that you can run a little leaner. And so we’ve gone through that exercise to make sure that we won’t be caught short in any areas. We carved out important areas like risk and audit and some of the control areas so they were spared kind of from taking reductions. And then we also carved out the areas that are important investment activities. And so, the rollup of all that, Matt, comes to a relatively modest number, 3.5% of total staff count. But I think we’re kind of lean and mean and in good fighting shape as we enter into 2024.

Matt O’Connor: Okay, that’s helpful. And then just separately, the deposit growth that you’ve had from the private bank, have you disclosed what that rate is? I think a third of them are not expiring, but what’s the blended rate? And I guess are you using promotions, whether it’s rate or other stuff to help grow those? Thanks.

John Woods: Yeah, we haven’t really talked about that, but I mean, I think what we should look at is that this is accretive to the low-cost profile top of the house. When you look at DDA and operating accounts, it’s extremely attractive mix that we’ve seen come in early days. So we’re extremely encouraged about our expectations for this to be a very sort of solid franchise deposit fully funding our loan growth that we expect on that side of — on the other side of the balance sheet. So, yeah, I would say the mix is quite good and overall cost, very attractive and accretive to top of house.

Bruce Van Saun: Yeah, I would — there’s a Slide 11, Matt, that lays out a pie chart of the character of the deposits, but DDA and then checking with interest, which are very low costs, roughly 40%, very little term, and most of that in kind of liquid savings and money market with no promotions that are outside the norm of what we’re offering to the core franchise.

Matt O’Connor: Okay. Thank you.

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

John Pancari: Good morning.

Bruce Van Saun: Hi.

John Pancari: Just a couple questions on the credit front. Charge-offs came in at around 46 basis points in the fourth quarter. You expect an average of about 50 basis points overall in 2024. Can you maybe talk to us about where you expect losses to peak and to hit that 50 bps for the full year and what gives you confidence that they can remain there? And then similarly, on the reserve front, I know you added to reserves in the fourth quarter, but you implied you could see releases in 2024. What do you need to see to drive the releases? Thanks.

Bruce Van Saun: Yeah. So I’ll start and then John can then give some more color. So I think that the kind of push that we’ve seen higher over the course of ’23, that could continue a little bit higher into ‘24. So going from 46, say, to 50 is kind of twofold for the most part. One is that CRE general office is, we’re watching the maturity wall and we’re on top of all these credits very carefully and we’re working them out. And as I said in my opening remarks, a lot of this is fairly predictable. So kind of we can look ahead six months, nine months, we can kind of anticipate where we might have to do some restructurings and where we might take charge-offs. And so I think we have good visibility into that. It’s a long process on CRE General Office.

I think we’ll have this with us all through ‘24 and likely into ‘25 as well. But again, the important thing is, I think we’re well-reserved for it, and it’s baked into that charge-off run rate. The second area is really just continued normalization on the consumer side, which has been extremely slow and gradual, but we’re still slightly better than where we were pre-COVID. And so that will just gently push up as we go forward. And so that would be the other driver. I’d say the good news is that in C&I, we’re not really seeing any kind of hotspots and so we feel that we have a pretty good outlook for broad C&I through 2024. On the question of the ACL is, this year we’ve been consistently building each quarter. And if you get to the scenario where there’s likely a soft landing or a very shallow recession, we’ve put away enough reserves that I think we will be able to start to draw that down.

And so time will tell on that, but you can already see that we’ve been starting to kind of reduce the amount of kind of reserve bill from absolute provision over charge-offs in this quarter. It was flat. It was $171 million over $171 million. And so even if charge-offs can pick up a little bit, I think it’s likely that you could see the need for provision building from having provisions exceed charge-offs reduce as we go through the year. I don’t know, John, if you want to add any color to that.

John Woods: Yeah, just a little bit. I think that all makes sense. And I’d say that the drivers of where you want to be with your reserve is, we have a relatively conservative economic environment predicted over the horizon which is a mile to moderate adverse outcome. So that’s built in We think that we’re seeing stabilization in terms of the performance of the back book in our loan book. So we see visibility into the charge-off outlook. And then the build, which could be the other driver of ACL when you’re building loans, what we’re rotating away from and building into, there’s actually a net flat to improved profile in terms of the very high quality origination front book in the private bank and commercial that we’re putting on the portfolio in ‘24 while other stuff, maybe a higher ACL load is running off in the back book. So those are the things I would just add to what Bruce said.

John Pancari: Great. All right. Thank you for that. And then separately, on the capital front, you indicated that you expect to resume buybacks in the first quarter of ‘24. And maybe if you could help us possibly quantify the pace of buybacks that’s fair to assume. Could you be back at that $200 million quarterly rate or how should we think about that? Thanks.

Bruce Van Saun: Well, at this point, we’ve given a kind of firm estimate for the first quarter of about $300 million. So we probably, with benefit of 2020 hindsight, could have bought some in the fourth quarter, but water under the bridge for [10/6] (ph). So we have a little above-target capital to kind of play with, if you will, in the first quarter. And then in the first half of the year, we’re not going to have much net loan growth. Non-core is going to be running down, and we don’t really see the flex in lending coming till the second half in the private banking commercial, as John indicated. So I think the buybacks would tend to be more first half oriented, but a lot can happen over the course of the year. And so I kind of defer from giving a kind of quarterly run rate just to say we’ll have a solid print in the first quarter and likely more in a second quarter and then we’ll see how the year plays out.

John Woods: Yeah, and I just would reiterate our capital priorities are a strong dividend, and if we have opportunities to put capital to work, serving clients and driving great really strong risk-adjusted returns. That’s our preference. And when that moderates a bit, that’s when you see us give it back in the form of buybacks. And so we’re in an extremely strong position to be able to have the opportunity to trade.

Bruce Van Saun: And one last add-on point to your add-on point is I would say I’m really happy to be buying my stock at these levels because we think it’s great value.

John Woods: That’s it.

John Pancari: Okay, great. Thank you.

Operator: We’ll go next to the line of Ebrahim Poonawala with Bank of America. Your line is open.

Ebrahim Poonawala: Hey, good morning.

Bruce Van Saun: Good morning.

Ebrahim Poonawala: I guess maybe one question for you, Bruce, as you think about capital deployment, you’ve been pretty busy last year in terms of the strategic actions. Just wondering, where do you see, like, as you look at investment opportunities for the franchise, are you done for now in terms of putting the big pieces in place, or how are you thinking about new things and new investments that we could see either on an organic basis, team lift-outs, or just outright M&A?

Bruce Van Saun: Yeah, good question. I would say the orientation right now is for backing our organic initiatives. So we’ve mentioned the private bank and we need to continue to invest there to get that off the ground and make it a big success. And we’ve been investing in the New York marketplace and certainly to get your brand awareness up is expensive proposition, but we’re doing that and that is showing very good results. There are certain businesses like payments that are, I think, going through a lot of change and that change always presents opportunities. And so making sure that we’re investing to position ourselves to deliver for clients and continue to gain share and grow that business, those are the things that kind of come top of mind that we’re very focused on.

I think in terms of acquisitions and our fee-based capabilities, we’ve made significant investments over time in commercial. And so our M&A size and scale is at quite a good level. So we could be selective there. Don’t see anything imminent, but there’s possibilities that if there’s an industry vertical that makes sense, maybe we could do something there. And then wealth, we’ve been looking at trying to buy some things. We bought Clarfeld, which turned out to be a fantastic acquisition, but I think the orientation the rest of this year is to really go the lift-out route and to bring teams onto the platform. And so we’re hard at work on that to try to scale up Citizens’ private wealth. So I would say the franchise is in good shape. There’s a lot of initiatives in place that will, I think, have us outperform from a growth standpoint relative to our peers.

So I think we can sit back and be selective in terms of deploying capital inorganically.

Ebrahim Poonawala: That is helpful. And I guess just one follow-up in terms of — for whatever reason, when you look at your NII, the fee revenue guide in particular, just maybe talk to us around expense flex. If some of these things don’t play out as expected, should we anticipate some level of, like, expense offset or are you kind of pretty tight given just everything you’ve done on the cost side?

Bruce Van Saun: Yeah, I mean there’s always opportunities to look to flex your expense base down. I think we’ve been pretty hard at it here to get to this level. And I’d say the strategic initiatives offer you some flexibility, but again, if you’re looking at the medium term and the longer term to try to scrape to come up with $0.03 to $0.05 or something of that magnitude, if that puts at jeopardy your trajectory on things like private bank, it wouldn’t appear to be a really advisable decision to take. So we will always look at that. You know you can trust us to do that. But at this point, we’re trying to manage for both near-term delivery but also with an eye towards the medium term and really getting that ROTCE back into the kind of targeted range.

Ebrahim Poonawala: Got it. Thank you.

Operator: Thank you. And your next question will come from the line of Scott Siefers with Piper Sandler. Your line is open.

Scott Siefers: Thanks. Good morning, everybody.

Bruce Van Saun: Good morning.

Scott Siefers: John, I think you’ve got five great cuts built into the guidance. Just maybe a broad thought on sort of where that balance sheet is geared now. In other words, I guess more specifically, how would more or fewer cuts impact the NII outlook?

John Woods: Yeah, I mean, I would say that we’re very close to neutral one way or the other, really up or down. And — but I’d say that I think what’s important to the outlook is we have deposit migration continuing to moderate every quarter. And it continued this quarter. We expect it to continue next quarter. But, our outlook is until you get that first cut, it still doesn’t completely go away. So we have an expectation the first cut comes in the second quarter and we get down to around 4.25%. I think that’s still holding around. We’re looking out the window today in the neighborhood of what the forward curve might indicate. I would say that if there’s a slight bias, if the cuts came in a little fewer this year, that would probably be okay.

But nevertheless, that first cut is key. And a general normalization in an orderly fashion over time is what we think is very good for our balance sheet. Again, staying around neutral with maybe a slight benefit if rates come in a tiny bit higher in ‘24.

Bruce Van Saun: The other aspect to that too is just we’ve had an inverted curve for a long time. So, when you think about the medium term, presumably we get back to a point where there’s a normal yield curve, which also benefits NII.

John Woods: Yeah.

Scott Siefers: Perfect. Thank you. And then also, John, for you, so the liquidity building efforts have introduced some noise into the margin rate, even if they’ve been NII-neutral, I guess, just looking at the guidance, presumably that’s going to be less of a factor going forward, but just maybe a thought on sort of where we are in that journey.

John Woods: Yeah, I’d say we’re basically — we’ve achieved our objectives with respect to our liquidity bill. This is the headline there. And it’s — we believe a very strong kind of position being around 117% of the requirements for Category 1 banks. I think that matches our objectives and therefore going forward you will not see liquidity being a headwind to net interest.

Bruce Van Saun: I think that was something we were talking about in the back half of the year. It affected us in Q3. It affected us in Q4. If you actually look at, I think, one of the dialogues on these calls a way back, are we going to exit the year close to 3% underlying? Well, we actually did do that. The underlying performance on our NIM was quite good. It only dropped 3 basis points, which is showing up well relative to everybody who’s reported so far. But that liquidity build, which is neutral to NII, took us down another 9. So we end up exiting closer to [290 than to the 3] (ph). But that liquidity build is kind of done. And so we can just focus on not having that, exercising that from the conversation and just focusing on what the underlying drivers are from here on out.

Scott Siefers: Perfect. Thank you very much.

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

Ken Usdin: Hey, thanks. Good morning, guys. One follow-up. You mentioned the PPNR bottoming in the second quarter. I’m just wondering, do you expect NII to bottom coincident with that, or would there be a slight timing disconnect based on how the swaps work through?

John Woods: Yeah, I mean, I think that is the driver. Basically, that we are looking at NII being at 70% of our revenues. So yeah, the NII’s going to bottom in that quarter as well.

Bruce Van Saun: But in Q3, Ken, then you’d have other things kicking in, like fee growth strong, long growth starting to kick in. And so even though the swap is incremental, forward starting swaps, then I think we’d have to look at the whole dynamic around what we expect to see in the business performance that would allow us to absorb that.

John Woods: Yeah [indiscernible] later. But PPNR troughs in 2Q.

Ken Usdin: Well, I’m sorry, John. Can you just clarify that again? I didn’t want to speak over it.

John Woods: Yeah. And I think we’re mentioning that the NIM trough is 3Q, but the PPNR NII trough is in 2Q.

Ken Usdin: Okay, got it. And then just looking out at the longer term guidance you gave just talking about the 3.25%, 3.40% medium term NIM range, it seems like that most of that can be gotten from the three buckets that you show, just getting curing from the fourth quarter level. And I see that you put in a 3.25% end of ‘25 Fed Funds rate. So I’m just wondering how you expect deposit costs and just beta to traject, and I know there’s a lot of moving parts in there too because of the growth that you’re expecting as well, and mix changes, but just can you maybe just start by just talking about if you’re getting to the low 50s on the way up, just how that expects to act and influences that medium-term NIM range? Thanks.

John Woods: Yeah, it’s a big driver. I mean, I think the big puts and takes there. I mean, you’ve got the swap portfolio, which is a big tailwind as we’ve talked about. But if you go over to the deposit side of things, we are looking at deposit migration stabilizing around mid ‘24 after that first cut in May. You see deposit migration stabilizing. And then as cuts continue, we start flipping to down beta type of expectations versus the up beta. And we look at the early 2000s as being instructive for a lot of this, where that tightening — that loosening cycle or rate cutting cycle would imply a 35% to 40% down beta for the first call it 100 to 150 basis points. And so that’s a good, I think, yardstick to think through our expectation that in the early part of the cycle, our down beta will be less than the full up beta, so our full up beta is low 50s, but nevertheless we’re going to get big contributions from down beta and that will grow over time getting close to where the up beta ended up.

Ken Usdin: Got it. Okay. Thank you.

Operator: And your next question will come from the line of Erika Najarian with UBS. Your line is open.

Erika Najarian: Hi. Good morning. I just had one follow-up question. Putting all your answers together, John and Bruce, about the outlook for 2024 and the underlying dynamics of net interest income, it seems to me that if we put together what you just said to Ken about deposit betas in Slide 23, that despite the exit rate of your net interest margin forecasted to be 2.85% in the fourth quarter, based on everything that you’ve told us, it seems like you’ll see a three handle in terms of that underlying NIM that Bruce discussed in 2025. Is that a good bridge to thinking about where you’re exiting in ‘24 and then that medium-term range that you gave us?

John Woods: Well, I would say, well, we’re exiting ‘24 at 2.85%. We’ve indicated that’s where fourth quarter of ‘23 is going to — no, fourth quarter of ‘24 will be. And so that’s headed to the 3.25% to 3.40% range. And so you would see us crossing that 3% level in ‘25 sometime, on the way to 3.25%.

Erika Najarian: Perfect. Thank you.

Operator: Thank you. And your next question comes from the line of Gerard Cassidy with RBC. Your line is open.

Gerard Cassidy: Hi, Bruce.

Bruce Van Saun: Hey, Gerard.

Gerard Cassidy: Bruce, you guys have done a great job from when you went public to where you are today in transforming this company. So I’m curious on your medium term outlook for ROTCE, on the improvement you highlight that the private bank you’re targeting at 20% to 24% ROTCE. Can you share with us the mix of how you get there, meaning what percentage of revenue do you think you need to reach from fees versus net interest income? And then also what kind of pre-tax margin do you think you’ll need to get to that 20% to 24% target?

John Woods: Yeah, maybe I’ll just start off with that, Gerard, it’s John. I mean, I think, our fees to total revenues are in the neighborhood of 25%. And I’d say over the medium term, you’re going to see that migrate closer to 30%. And that would be consistent with a balance sheet optimization efforts where all of the capital we’re putting to work on the front book would have relationship opportunities with attractive deposit and fee-based opportunities associated with it at a much greater rate than what we’re seeing running off in the back book. And so that’s going to drive that fee percentage up closer to 30%. And I think that the returns that we expect from a, call it, the ROTCE return that you’re seeing in the medium term is consistent with a return on tangible assets that’s north of 1%. So you see that getting closer to 125 basis points as a way to think about what the returns are on the asset side.

Bruce Van Saun: John, you’re answering at the comprehensive company on that MTO page. I think, Gerard, is focused more specifically on the private bank mix. But there, I would say, it will build over time, the fee percentage, as we kind of get the wealth cross-sell. But we should at least be at kind of where we are today in 75%-25%, and then I think there’s kind of upside from that over time. And I do think the spread on the private bank assets is very significant today, given the high percentage of low-cost deposits in there. We haven’t really seen the loans come on in size yet, but generally capital call lines tend to be priced with a nice return. And I think some of the other business lending and HELOCs and things that will maintain our price discipline and achieve a good spread there as well. So I think if you looked at kind of mature private banking models to have a 20% to 25% return on equity is realistic. I don’t know, Brendan, if you want to add to that at all?

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.

And we’re thinking about the private bank in some ways in a similar way. So we’ve got all the tools to compete. We do expect, as the rate curve follows as projected, interest-bearing deposits on the consumer side will start to come down as well. And we’re starting to think about a mix of balances. We’ve got a lot of CDs that potentially can roll over here in the first part of the year that we’ll be looking to have more balance and put some of those balances into liquid savings to give us more levers to manage down betas over the course of the year. So all that is to say I feel pretty good about how we are situated. We’re starting to see good dynamics with the consumer expected to continue and I’ve got a lot of confidence that we will outperform peers in whatever environment comes our way.

Manan Gosalia: Great, thank you. And then just to follow up on credit, given the move lower in long end rates, can you talk about anything you’re seeing in the non-office CRE portfolio, like maybe in multifamily? How do things like the debt service coverage ratios look today versus a couple of months ago, and how do you expect that to trend given where the forward curve is right now?

Bruce Van Saun: Yeah, I would just answer broadly that we feel good about the multifamily portfolio, its characteristics, its relatively small loan sizes, a lot of fixed term loans, good diversification geographically. And so we, I think, felt that loss content there was going to be quite low. But now, obviously, with rates ticking down, that provides more kind of air in terms of the distance between the debt service coverage ratio and kind of cash flows. And so we feel that it’s helpful, but we weren’t worried all that much previously. So anyway, that’s…

John Woods: Yeah, I would just hasten and add that it’s very different than general office. I mean the capital markets are still active in the context of buying and selling multifamily properties and that will just provide further tailwind to that activity.

Bruce Van Saun: There’s a lot of liquidity there.

John Woods: Yeah, there’s liquidity there. Buyers and sellers are still transacting. So it’s just a very different night and day situation compared to general office, and certainly rates which won’t have much of an impact maybe on the general office, will very much have a positive impact on the multifamily construct that was already okay to begin with.

Bruce Van Saun: Okay. Very good.

Manan Gosalia: Great. Thank you.

Operator: And there are no further questions in queue. And with that, I’ll turn it over to Mr. Van Saun for closing remarks.

Bruce Van Saun: Okay. Great, Keeley. Thanks again, everyone, for dialing in today. We appreciate your interest and support. Have a great rest of the week. Thank you.

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