Q2 2025 Citizens Financial Group Inc Earnings Call
Good morning everyone and welcome to the citizens Financial Group, second quarter 2025 earnings conference. Call my name is Denise, and I will be your operator today. Currently all participants are in a listen-only mode. Following the presentation, we will conduct a brief question and answer section as a reminder, this event is being recorded. Now, I will turn the call over to Kristen silverberg head of investor relations Kristen you may begin
Kristen Silverberg: Thank you, Denise. Good morning, everyone. And thank you for joining us first this morning, our chairman and CEO Bruce banson and CFO John Woods will provide an overview of our second quarter results, Brandon Coughlin head of consumer Banking and Don McCree head of Commercial Banking are also here to provide additional color. We will be referencing our second quarter presentation located on our investor relations website. After the presentation, we will be happy to take questions.
Kristen Silverberg: 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's important to review our Gap results in the presentation, and the reconciliations in the appendix. And with that, I'll hand over to Bruce. Thanks Bruce and good morning, everyone. Thanks for joining our call today.
Speaker Change: Uh, we are now strong financial results today that exceeded expectations, notwithstanding tremendous uncertainty in the macro environment during the quarter.
Highlights include strong knee. Growth of 3.3%, sequential quarter pays by Nim expansion of 5 basis points and the resumption of net loan growth across consumer private bank and Commercial.
Speaker Change: Good feed growth of 10%, which was paced by wealth card and mortgage.
Speaker Change: Good expense discipline with expenses, broadly flat resulting in 500 basis points of operating leverage and credit. Trends remaining favorable and continued meaningful share repurchases.
Speaker Change: It's worth noting. That Capital markets, still managed to have a pretty good quarter, notwithstanding the uncertainty in the environment.
Speaker Change: Our diversity helped as strength and Equity underwriting and Loan syndications offset, weaker debt, Capital markets and a delay in the completion of several significant m&a deals.
Speaker Change: We expect that we will record over 30 million dollars in fees on these deals in July, and our pipelines. Remain strong, setting us up, well, for the second half.
Speaker Change: Our balance sheet remains Rock, Solid across Capital liquidity, funding and our credit Reserve position.
We continue to execute. Well on our strategic initiatives, the private bank has strong growth in loans and AUM with average deposits up nicely but spot deposits impacted somewhat by the timing of inflows and outflows. We remain on track to hit all full year targets.
Speaker Change: The business is on track to deliver in excess of 5% accretion to Citizens, bottom line, and a 20% plus Roe in 2025.
Speaker Change: In addition efforts across New York, City metro private, Capital payments and BSO are all tracking. Well,
Speaker Change: we've commenced work on a project. We are calling re-imagining the bank, which will be led by Brendan and other top leaders.
The objective is to redesign how we serve customers and run the bank, taking advantage of new technologies, like gen Ai, and agentic AI.
This requires changes to our organizational model, our underlying technology and data architecture and imparting new skills to our colleague base. It will be multi-year in nature and ultimately serve as our next top program.
Stay tuned for more details later in the year.
With respect to the second half. We believe that economic conditions and markets are trending favorable though, further machinations around tariffs, continue to present a degree of uncertainty,
Speaker Change: Unfortunately uh rather fortunately, the fundamentals to drive higher deal activity and a pickup in loan, demand remain intact and we feel well positioned to capture the opportunity and to deliver good results.
We remain comfortable with the full year guide for 2025. We gave back in January and we're well positioned to sustain that momentum into the medium term.
Speaker Change: In short, we feel good about our positioning overall from a strategic business and financial standpoint.
Speaker Change: We will stay focused on execution and the things we can control. As we continue our efforts towards building a distinctive great Bank, uh, with that. Let me turn it over to John.
John Woods: Thanks Bruce and good morning, everyone.
John Woods: As Bruce mentioned, we delivered strong second quarter results with really good Revenue, performance and disciplined expense management. Resulting in positive sequential operating leverage of about 5%.
John Woods: We saw lending begin to pick up during the quarter with net growth of commercial consumer and private bank more than offsetting our non-core Rundown.
John Woods: Referencing slides 5 and 6, we delivered ETFs of 92 cents for the second quarter, a 15 cent or 19% improvement, over q1.
John Woods: That interest income for the quarter was up 3.3% driven by margin expansion and interest earning asset growth.
John Woods: These were up significantly linked to quarter wealth in card fees. Were a record for the quarter and capital markets, showed, modest growth, despite Market uncertainty, which resulted in several meaningful m&a deals, pushing into July.
John Woods: In MSR evaluation.
John Woods: Expenses were well-managed and net charge, offs came in as expected.
John Woods: With respect to our balance sheet, we continue to maintain robust capital.
Strong liquidity levels and a healthy credit Reserve.
John Woods: We ended the quarter with set 1 at 10.6% while also executing dollars in stock BuyBacks during the quarter.
John Woods: And importantly, we are executing well against our key strategic initiatives passed by continued momentum in our private bank and private wealth buildout.
John Woods: The private bank continues to steadily grow its profitability. Contributing 6, cents to EPS this quarter up from 4 cents in the prior quarter, and we delivered our strongest quarter of loan growth so far adding 1.2 billion dollars in loans.
John Woods: Also we continue to make good progress in New York Metro and our top 10 program is On Target and progressing. Well with work commencing on a multi-year, transformational top program to reimagine how the bank operates.
John Woods: Next, I'll talk to the second quarter results in more details, starting with net interest income on slide 7.
John Woods: Net interest income increased 3.3%. Linked quarter driven by continued expansion of our net interest margin and modestly higher interest earning assets.
John Woods: As you can see from the Nim at the bottom of the slide, our margin improved 5 basis points to 2.95%, given the time-based benefits of non-core, runoff and reduced drag from terminated swaps as well as favorable fixed asset repricing.
John Woods: in addition, we continue to optimize our funding and execute well in our down rate deposit, Playbook as our interest bearing deposit costs, decreased 2 basis points,
John Woods: Moving to slide. 8 fees are up, 10% linked quarter.
John Woods: Capital markets improved modestly driven by higher Equity underwriting and Loans syndication fees.
John Woods: On underwriting fees were lowered due to a tariff driven, pause in activity for part of the quarter.
John Woods: Similarly m&a advisory fees were lower with some sizable deals pushing into July given the market uncertainty during the quarter.
John Woods: We expect that we will record over 30 million dollars in fees on these deals in July.
We continue to perform well in Middle Market. Sponsored bookrunner deals ranking, third by deal volume in the second quarter.
John Woods: And our deal pipelines across m&a and DCM remains strong in terms of the number and value of transactions given pent up demand.
John Woods: Our wealth business delivered. A record quarter with increased transaction activity and higher advisory fees from continued positive momentum fee, based AUM growth in the private bank.
John Woods: A card business. Also delivered, a record quarter driven by a seasonal Improvement in purchase volumes.
John Woods: Importantly in consumer we recently launched a new suite of MasterCard, credit cards designed to address the distinct financial needs and preferences of our customers which should help us accelerate growth in this business.
John Woods: Mortgage Revenue growth, reflects an improvement in MSR evaluation as well as seasonal growth in production.
John Woods: Lastly, other income was a bit higher than usual this quarter. As we had a few things, break our way. This line can move around a little from quarter to quarter.
John Woods: On slide 9 expenses are broadly, stable linked quarter helping to drive positive. Operating leverage of about 5% and improve our efficiency ratio to below 65%.
John Woods: Our latest top program is progressing well and has On Target to deliver a 100 million dollar pre-tax run rate benefit by the end of the year.
John Woods: We've undertaken an effort to develop a much broader program to use new technologies, to better serve customers and run the bank.
We'll give you more on that later in the year.
John Woods: On flight 10. Period. End loans were up. 1% this includes non-core, portfolio, runoff of roughly 700 million in the quarter.
John Woods: Excluding non-core loans were up approximately 2% on a spot basis.
John Woods: The private bank delivered, its strongest loan growth quarter so far with period, end loans up about 1.2 billion dollars to 4.9 billion.
John Woods: Commercial loans were up slightly given some new money Landing growth and a pickup in line utilization.
We are past the peak in terms of client, BSO X's, which is also creating less drag to growth.
John Woods: And core retail loans, grew driven by home equity and mortgage.
Next on slide 11 and 12. We continue to do a good job on deposits. Improving the mix with an increase in non-interest bearing to 22% of the book and lowering our overall deposit costs.
John Woods: Average deposits were up. 1% driven by increases in lower cost categories across consumer and the private bank.
John Woods: Treasury, broker deposit this quarter and a decline in retail TVs.
John Woods: We delivered strong retail, CD retention rates, even as we reduced yields, this was a meaningful driver of our improving deposit cost of this quarter as our deposit. Franchise continues to perform well in a competitive environment.
Our interest bearing deposit costs are down 2 basis points. This quarter translating to a 54% cumulative down beta
John Woods: And importantly, stable retail deposits are 67% of our total deposits which compares to a peer average of about 55%.
Moving to credit on slide 13.
John Woods: Net charge offs of 48 basis, points are down from 51 basis points in the prior quarter after adjusting for the 7 basis points impact of the non-core education, loan sale in q1.
Retail. Net charge offs improved across both core and non-core down about 10 basis points after adjusting. For the non-core education, loan sales,
John Woods: This is partly offset by a modest increase in commercial net. Charge offs primarily driven by an increase in cni relating to several small idiosyncratic credits.
John Woods: Of note non-equal loans. Continue to Trend favorably and we're down 4%, linked order, reflecting of the decline in cni.
John Woods: Retail non-accrual loans also decreased with a reduction in other retail and continued runoff of the non-core auto portfolio.
John Woods: as we look across the portfolio, we believe that credit Trends are showing signs of improvement and that non-accrual loans for this cycle, likely peaked in the third quarter of 2024 and that charge offs peaked in the first quarter of 2025
John Woods: turning to the allowance for credit losses on slide 14.
John Woods: The allowance was down slightly to 1.59% this quarter as the portfolio. Mix continues to improve due to non-core, runoff reduction in the, in the creek, portfolio and lower loss content, front book originations across cni and Retail real estate secured.
The economic forecast support in the allowance for Flex, a mild, recession and macro impacts from tariffs similar to last quarter.
John Woods: The general office balance of 2.7 billion dollars continued to decline modestly in the second quarter driven by pay downs and charge offs.
John Woods: the reserved for the general office portfolio is 322 million which represents 11.8% coverage
It's worth noting that this is the first quarter since the general office concerns began that our ACL coverage level declined.
John Woods: We allowed the reserve coverage to come down slightly utilizing the reserve as we make progress with the workout backlog, and the rest of the book remains stable.
John Woods: Note that the chemo to charge offs. Plus the current Reserve translates to a total expected loss rate of about 20% against the March 2023. General office loan balance consistent with their view at the end of q1.
Moving to slide 15. We have maintained. Excellent balance sheet strength.
Our set 1 ratio is 10.6%.
Adjusting for the aoci optout removal our set 1st stable, at 9.1%.
John Woods: Given our strong Capital position. We repurchased 200 million dollars in common shares at a weighted average price of $39. And including dividends, we've returned a total of 385 million to shareholders in the second quarter.
John Woods: Our share repurchase program was also increased to 1.5 billion by the board of directors in June.
John Woods: Moving to slide 16.
John Woods: We are well positioned to drive strong performance over the medium-term, with our overall 3-part strategy, a transformed consumer Bank, the best position Commercial Bank among our regional peers and our aspiration to build the premier bank-owned private bank and private wealth franchise.
John Woods: In support of these businesses, we've commenced work on a broad reimagining, the bank initiative that will drive meaningful benefits by revisiting how we operate front to back and leveraging new technologies, like AI to serve customers in new ways and run the bank better.
John Woods: This will become a multi-year, transformational top program and we will have more to say about this as the planning progresses later in the year.
John Woods: Moving to slide 17, our private bank continued to make excellent progress.
We delivered our strongest loan growth quarter so far. Adding 1.2 billion dollars of loans to end. The second quarter at 4.9 billion,
John Woods: This reflects growth in commercial as line, utilization is picked up given increasing client activity, as well as growth in mortgage.
John Woods: At the end of the first quarter and some outflows at the end of the Q2.
We've seen good deposit Gathering momentum. Early in the third quarter, with deposit levels over 9.5 billion dollars in mid July.
John Woods: The overall mix continues to be very attractive with about 36% in non-interest bearing at the end of the quarter.
John Woods: We added 3, more strong wealth teams, this quarter 1 each in northern New Jersey, New York City, and Los Angeles.
John Woods: We ended the quarter with 6.5 billion dollars in AUM up 1.3 billion dollars for the quarter.
John Woods: For the 6 Cent contribution to EPS from the private bank. In the second quarter, we are tracking well against our targeted, 5% plus accretion to Citizen bottom line in 2025.
John Woods: And to deliver a 20 to 24% return on equity for the year and over the medium term.
Moving to slide 18.
John Woods: We provide our guide to the third quarter, which contemplates a 25 basis point rate cut in September.
John Woods: We expect net interest income to be up approximately 3 to 4% driven by an improvement. In net interest, margin of approximately 5 basis points with interest earning assets of slightly.
This pickup and net interest margin is primarily attributable to the time-based benefits of non-core. Runoff,
John Woods: Reduced drag from terminated swaps and a benefit from fixed asset rate repricing.
John Woods: We expect non-interest income to be up low. Single digits led by rebounding activity and capital markets, which will be partially offset by reductions in mortgage and other income.
John Woods: We are projecting expenses to be up approximately 1 to 1.5%, reflecting continued, private bank buildout and broadly, strong fee revenues.
John Woods: We expect to deliver positive operating, leverage for the second quarter in a row.
John Woods: Credit Trends are expected to improve modestly from the second quarter charge off level.
And we should end the third quarter with set 1 stable, including share repurchases of roughly 75 million which could be impacted by the amount of loan growth.
John Woods: Our full year outlook remains broadly in line. With the guide we provided in January, which contemplated a pickup in business activity, in the second half of the year.
John Woods: Looking out to the medium term, we see a clear path to achieving our 16 to 18% Rosy Target.
John Woods: Expanding our net, interest margin is also an important driver. And we continue to project to be 305 to 3.100% in 4225.
3.15 to 3.30% in 4226.
John Woods: And then the 3.25 to 3.500% range in 2027.
John Woods: slide 21 in our appendix provides some incremental details on our net, interest margin progression to 2027
John Woods: this combined with the impact of successful execution of our strategic initiatives, and improving credit performance will drive Roxy, meaningfully higher through 2027
To wrap up. We delivered strong second quarter results that came in ahead of expectations. Highlighted by growth in net interest margin, good feed performance and positive operating Leverage
John Woods: we ended the quarter with strong Capital liquidity and reserves which puts us in an excellent position to support our clients and continue driving growth and progressing, our strategic initiatives
Bruce Banson: With that, I'll hand it back over to Bruce.
Okay, thank you. John. Um, Denise. Let's open it up for Q&A.
Speaker Change: Just press star 1. Please unmute your phone and record your name. Clearly when prompted your name is required to introduce your question.
Bruce Banson: To withdraw, your question, press star 2.
Speaker Change: And our first question today, comes from Ryan Nash with Goldman Sachs, your line is open.
Ryan Nash: Hey, good morning, everyone.
Hi.
Um, Bruce, you know, you saw it nice long growth in the quarter, um, you know, obviously a decent amount of it was idiosyncratic given the gains that you're making in the in the private bank. So, you know, I know there's a lot of moving pieces with loan growth, you know, runoff in CRA strategic runoff, but maybe can you just talk about? You know, what you're seeing in terms of growth in sort of the private bank and then everything else? And how you're feeling about sediment from borrowers for the remainder of the Year? Thank you.
Ryan Nash: Commercial consumer, Private Bank have net loan growth, and at the Enterprise level, we had, uh, loan growth that exceeded, uh, the kind of PSO and non-core rundown actions that were taking. Uh, and you know, when we look into the second half, I would say, uh, we're constructive on kind of the macro. And, uh, the fact that there's been pent up demand, uh, to, uh, uh, put money to work in, uh, the sponsor space. Uh, we're starting to see kind of some new deal flow or starting to see a pick up and line utilization, uh, there. Um, and, and a little bit, also in the pure corporate banking side, I think the private bank is uh, finding its footing uh, in terms of uh, we kind of get have the operation up and running initial focus is uh, attracting the relationships and uh, Gathering the deposits, and the operating accounts, and I think it's been a little slower to see the loan. Demand. Pick up.
Ryan Nash: But uh, we're now starting to see that. Uh, so some of the growth in the quarter was line utilization on some of the pebc uh subscription lines we have. But also the individual consumer borrowing, uh, particularly around mortgage, uh, that's starting to pick up as well. Uh, and so we expect that now, to to continue, uh, clearly a little drop in rates, if it happens in the second half would be a bit of a Tailwind there. Uh, and then in consumer, we've been kind of just very
Ryan Nash: We have a great HELOC product, we lead the market, uh, in HELOC market share, uh, that continues to be a product that is in demand, uh, as well as, uh, mortgage, uh, being another area where we see, uh, consistent modest growth, uh, but nonetheless, it's growth.
Speaker Change: Uh, and then we launched a whole new card complex during the quarter. Uh, and we would expect to see balances in the card space, uh, pick up a bit. So, uh, you know, I'd say we see growth continuing really across the complex and the other net positive is some of the BSO is starting to wind down and become less of a headwind. So the non-core reductions are smaller as we go forward. Some of the work that's been done in commercial, uh, that smaller as we go forward. And so uh, that'll free up the overall. Net number to be a little bit more positive. So with that, why don't I go first to Brendan? And then we'll go over to Don Southco? That was all well said. So maybe I'll just supplement that with a few numbers in the core retail, uh, business excluding non-core, uh, we were up about 400 million quarter on quarter about a billion 4 year on year. So we're seeing steady high quality relationship LED growth. The HELOC progress that we're making has been substantial and with
With external numbers that are available on. Um, um, you know, record title recordings. It appears we've been number 1 in the United States and originations in the last couple quarters, uh, in the credit quality has been very, very high, high 700s, bicos mid-60s CLTV. So we're very pleased with that yields above 7%, um, so bad when we're not playing across the country and we're only playing in 14 or 15 states and and and number 1 nationally. So and those all come with deep uh deposit relationships as well, given the structure of the product and our strategy. So we're very pleased with that. As Bruce mentioned, the work incredibly excited about the new credit card product launch. It will be mostly oriented around cross-selling, into our retail customer base versus trying to be a national issuer. Uh, but we believe the products are very competitive. And in fact, uh, we're seeing, uh, 30% of our early sales and our higher-end, uh, massive fluent oriented card uh, that we're calling Summit Reserve, which is a metal black card and also comes with an annual fee, so it can reposition the profitability of the credit.
Card business over time and we expect balances uh as purchase activity to scale in the back. Half of the year start to see some modest high yield and growth there. So we feel like we're all positioned in consumer for that to continue and and maybe accelerate a little bit on the yield side with with card in the private banking space.
Margin in this business. That is nimac creative, which is driving. The obviously the Roe accretion at the at the top of the house for us to deliver the rest of the year in private banking, we need an average of, you know, billion 1, a quarter versus 2 billion 2, we just did. So we feel pretty good that the story can continue and we'll the pipelines are strong and demand is really increasing. Um, you know, hopefully uh with a volatility in the market. Um, staying in the same Zone, we're in now or better. Uh we feel really positive and then on the non-core side, just, as Bruce mentioned, the rundown is easing. Last year, we were running down about a billion, a quarter uh for the back half of the year, it'll be about a half a billion, a quarter. So, uh, still a little bit ahead wins there, but that's reducing, which should be met a creative and hopefully allow us to, uh, all the front book activity. We're seeing in the customer businesses to start to scale up.
Bruce Banson: Okay done. Yeah. So I'll pick up where Brandon ended, which is, you know, we've been, we've been reducing our book X CRA by about a billion dollar a quarter on, on our uh, BSO agenda. And that's we're basically almost done with that. So that's going to be a headwind. That goes away. We'll continue to reduce create a little bit to the tune of half a billion, a quarter or so. But that'll be a little bit of a drag. But we're, I mean, what we're seeing is Broad business optimism across the board, uh, this quarter, it was really led by the private complex, which everybody knows. We've put a lot of resources and a lot of strategic emphasis on. So we saw a lot of great utilization in our subscription.
Bruce Banson: Lines in our private credit lines. That was probably about 75% of our loan growth. In the quarter with about 25% coming from cni. But as I as I'm out, talking to cni customers, they're, they're starting to see the uncertainty around the different policy. Questions, Abate. So, you've got the budget bill passed. You've got the Middle East solved, you've got tariffs moving behind us and they're beginning to invest in their businesses again. And, uh, we're seeing, you know, quite Dynamic, uh, pipeline growth across core cni. We're also people remember, you know, we, we Bruce mentioned and John mentioned that New York Metro were were 2 and a half 3 years into now. But we've also opened up in Florida and California in terms of middle market growth and we're seeing very nice new business generation in those markets which is generating not only loan growth but it's generating full wallet relationships where which we're really encouraged by. So, you know, very different from where I was 6 months ago. I'm very optimistic about
Speaker Change: What we see going forward, we'll see how quickly it materializes. But it seems like, um, the, the environment is a good Tailwind to the next. Uh, couple quarters. Yeah. I would just, uh, put 1 Aster on what you said. Don is the like the worst case, uh, outcomes on tariffs seem to be behind us, but, uh, you know, it's still kind of out there as, uh, something to contend with. But I'd say, most folks feel that will negotiate something that results in Fair.
Trade, they'll be a higher tariff rate, but it's not, uh, something that is going to knock people off their pegs.
And they're and they're adjusting their business models to deal with it. Correct. So uh let's hope that uh is the case as we go forward. But uh, in any case uh, I think that uh has turned into something. That's not as big. A a concern in terms of causing uncertainty. I also think besides the, the tax bill getting through the regulatory uh, appointees getting confirmed. And having pushing that aggressive, deregulatory, agenda will also be positive in the second half of the year. I agree. I agree. Okay, Ryan anything else? Yes. Um no, that was a great uh in-depth response. I just I feel bad that uh John didn't get a chance to answer so maybe I'll just throw 1 out there. We'll throw 1 out there for him and obviously it's been great to see the Nim expansion and you sort of reiterated all the the Nim expectations every over, over the, over the medium term, I guess, you know, you know, given the potential that we could have a more dubash fed at some point in the not so distant future, maybe just talk about, you know, what steps you are taking if at all to sort of
Try to lock in the, you know, higher end of those margin expectations and even if we're in a more dovish environment, can we see sort of the midpoint or higher? Um, in terms of the net interest margin, thank you know, more from me. Yeah. I appreciate that, uh, Ryan. And so, I guess what I would talk about is, you know, we have this range, uh, that we've talked about over the medium term of 325 to 350,
Low, end of that range of 325 and, um, and anything higher than that. Um, you know what, we what we message was, you know, something in the neighborhood of 350 probably puts us in the middle of our range and at 337 them and anything that, you know, higher for longer gets us to the high end of that range. So we're feeling very um, increasingly confident in that in that range. And uh, what we've been doing to try to quarter over quarter, to protect that downside is opportunistically, um, you know, putting on Hedges, um, in a forward starting way and those Hedges generally. Um, are well, north of where we think. Um, the FED will likely come out. So they'll be, they'll be stable to providing protection against that lower end. So, get a little bit of hedging in the second quarter, a little bit in the first quarter, and we'll continue to opportunistically. Look for our spots given rate volatility and, uh, that's playing out really, as, as, as expected. Um, and so, um, you know, feeling pretty good about that range. Yeah.
Speaker Change: Yeah, I'll just I'll just add is that uh you don't want to spend all your powder uh, on the down scenario. So uh, we've left some of the out years, a bit open because you could get in a situation where you have stagflation and then you want to, you know, be able to participate and get the benefit of that in a, in a higher rate environment. So, uh, you know that's uh kind of a judgment call but I think we have a really good buy box discipline so to speak. So, uh, we're we're waiting
Speaker Change: To see little spikes and then we'll put some more on. Uh, but we're still uh, kind of open to the possibilities that we could end up in a different scenario than what is the consensus scenario. If the FED kind of moving down,
Speaker Change: thanks for the caller.
Speaker Change: Yeah.
Thank you. The next question comes from Erika. Najarian with you.
Yes. Hi um, good morning uh wanted to ask about the um right hand side of the balance sheet in terms of the strategy for the second half of the Year, given everything that I've heard um, from Brendan and Don, it sounds like it's going to be um, a good second half for growth, and I've noticed John that you did have great nib growth in the quarter total deposits for down a little bit. As we think about the second half of the year and potentially, a growth year outlook. How are you thinking about, sort of growth versus optimizing the mix and or is there sort of more BSO to consider that's coming on the asset side that could help fund that growth?
Speaker Change: Yeah, I think it's a tale of of both of those Erica but well I'll start off with the deposit side. I think we're pretty pleased with our low cost deposit Trends. Uh so the mix improved in the second quarter um compared to the first quarter um, in the on DDA and low cost overall. Uh, and and that those contributions uh,
Speaker Change: Um, you know, are driven probably that predominantly by um, our idiosyncratic Private Bank. Uh, you know, growth that that comes in at 36% uh, of non-interest bearing. So that's a creative to top of the house but also the, the, the core retail deposit base has just been performing exceptionally well versus, uh, versus peers from all that we can tell. So there's very strong momentum there and then we have really good. Uh, seasonal factors that contribute in the commercial side and the second half typically. So all that lines up for what we believe to be stable to improving mix on the deposit side while actually still being able to grow deposits to support, uh, our loan growth Outlook and and a stable ldr output, too stabilizer. Yeah, excellent. And liquidity, with very good, ldrs, a good point there. And then on, and then, of course, on the left side of the balance sheet, we are still rotating Capital. Uh, you you you know, maybe to a declining degree, uh, but we've done a really nice job of rotating, all of that Capital out of
Speaker Change: Non-core and deploying it into highly strategic opportunities in the front book across all 3 businesses, all 3 legs of the stool. So that's been really efficient and that front book back book is extremely powerful and we'll continue for some time um, you know, in the non-core space. And then you heard Don talked about the fact that he still rotating capital. In cni, although to a decreasing level such that we're seeing some of this growth fall to the bottom line. Okay, uh I'm going to just uh, briefly ask for a brief.
How we manage our deposit strategy? Uh so we generally have been flat-ish linked quarter on interest bearing deposits, but we've actually grown retail core relationship, deposits, and released a little bit of interest bearing, deposits on the citizens access side, which is giving us a lot of ability to manage margin and the total, uh, yield on the consumer business is down 3 basis points as a result. So all of that is giving us uh, the ability to uh rotate to a higher quality deposit, book, more relationship LED and given us some, some flexibility on the on the yield side. We've had a lot of CD, um, maturities. Uh, 8 billion in q1 6 billion. In Q2, we're retaining about 87% of that but the yields on that are down 120 basis points when we save those balances. That's also allowing us to, uh, Drive costs down. Uh, and we have, uh, you know, large maturities coming due. It's a little bit less in the second half than the first half of the year. But we still have big maturities, a lot that we expect that, um, to continue to give us some some cost value and then the private bank side. I won't add a lot, you know, we've got
Speaker Change: Confidence in the outlook on growth, 36% low, uh, not interested during 42% low cost when you add in seaweed. So the portfolio is of real high quality. We're starting to see the consumer side, starting to gear up, uh, on some growth as well. And we just expect those Trends to continue through the summer and into the fall. So, we're pleased with that. And that should give us the ability to have a use and C idiosyncratic deposit growth.
Speaker Change: Yeah, and and I, I'll be super brief, I'd say the 2 things um, excited about. On the, on the deposit side is, we are getting a nice win rate in our expansion markets, which is full wallet win rates, and then, we've had a couple interesting wins on the payment side and another big Merchant acquiring account, and a couple other embedded, Finance type of accounts, which is coming with some nice low-cost deposit growth. So, it's changing our mix a little bit and, uh, the liquidity team on the commercial side of the house is done, a great job, building a, a bunch of product functionality, which is away from just the core client functionality. So we see nice momentum on that front. Good.
Speaker Change: Anything else? I just
Speaker Change: Yeah, just 1 more for you, Bruce, just on on, on the capital, you know, you know, obviously you're you're a large peers. They're you know, they're requirements. Um, have started to move down with this year's stress test potentially more with other types of recalibration with Basel, 3, endgame, um, potentially getting finalized, you know, maybe the aoci burden is, you know, just a third for in, you know, near-term than the, you know, 150 basis point adjustment that we have fully accounting for it today.
Speaker Change: I guess like, you know, in terms of Regional Bank C1 and and and excess capital definition, how much of it can sort of ride with the momentum of the Gibs versus potentially, um, being um, also, um, upheld for by the ratings agency. I know, 1 ratings agencies, I know 1 of your peers talked about, um, that being a bit of a binding constraint for the Regionals, and I'm wondering if you had any thoughts on that.
Yeah, um, sure. So I would say
Um, it's it's good when you come through a turbulent period, like uh, we had in the banking industry through 23 and part first, half of the 24h to build capital and run a little conservatively. And so I think you've seen all the Regionals, uh, building their capital. I think the rating agencies view collectively is, uh, that profitability, excuse me. Profitability took a bit of a dip, uh, and, uh, needs to be kind of, uh, restored. Uh, and then also, there was this overhang of, uh, commercial real estate, uh, office that, uh, needed to work itself through. And so, uh, you know, hold more Capital, until we see the flex point where, uh, profitability has rebounded and you've got through the, the, uh, kind of workout phase and substantially through and credit appears to be in good shape.
Speaker Change: Industry is going to economy is going to go through cycles. That means the industry is going to go through cycles, and there's going to be opportunities with this, uh, when the West Coast banks failed. We were in position to go, uh, bid and ultimately to do the startup of the private bank uh in a tough environment. So actually running with a little uh more conservative in your capital structure proves to be a long-term benefit. Uh, so so that's where I think it is. Uh, Erica.
Erica: Thank you.
Speaker Change: Right.
Speaker Change: Thank you. The next question comes from Matt o'conor. Your line is open with Deutsche Bank, I'm sorry.
Speaker Change: Uh, thank you. Um, I was hoping you could just elaborate a little bit on the re-imagining, the bank, uh, initiative. Maybe, um, any color if there's kind of a point person running it, uh, and how it's different from the top initiatives that we've seen over the last several years.
Okay, I'll start. And I think I'll flip it to Brendan uh who will be on point uh, for this 1. But um, you know, if you if you
Brendan: Go back in the annals of our top program. We've had 10, uh, number 6 about 5 years ago, was a bigger more complex program, that kind of took a 2-year time frame, uh, and had more technology investment uh, to deliver, uh, the benefits. And so, a lot of times, uh, when we focus on these,
Brendan: Annual top programs. Uh, we're going after uh, faster winds that aren't as complex and across the Enterprise and involve uh rolling out, new technologies, but we paused and did a 2-year program in top 6. I think we're at a, at a flex point. Now, in what's happening with new technologies, uh, that it's worth, uh, doing something similar, uh, for the next, uh, top program. Uh, and I think it's, it's kind of broader top program may sound limiting. And, you know, when you say reimagining the bank, uh, it's how you're serving your customers, what you can do for your customers, uh, the efficiency of how you're running the bank, how you, uh, can just say, uh, things. Like, uh, you know, I have all these people in the call centers. What are ways to uh, deliver better outcomes? Uh, and more cost-effectively, uh, what would it take to ultimately drive? That what has to happen from a technology standpoint, uh, uh, organizational standpoint? It's
Etc. Uh, so we're taking that step back now. Uh, we're talking with lots of outside Consultants looking at, uh, scenarios across all Industries across, uh, the planet, uh, in in the banking industry, uh, what are, what is kind of the The Cutting Edge right now, in terms of how these Technologies are being deployed, that can be kind of a seismic shift in how your Banks operating, uh, it sounds, you know, I don't want to, I don't want to set expectations too high. Uh,
But we are really at an exciting period now. Uh, so we basically set up a xco, uh, like mini xco sponsorship Group, which is going to be led by Brandon, uh, we have a, a kind of day-to-day lead project team, uh, from some key people across the bank that will focus on this, uh, mainly as their job now for the next, uh, few quarters. Uh, and then we have, uh, some idea on the silos that we can go attack. Uh, so we're kind of setting up the structure and then we're going to unleash this very shortly. But with that setup maybe Brendan you could add to that. Uh, yeah, uh, I, I guess my, uh, my thoughts here would be, uh,
You know, after going through the IPO for 10 years and then through Co I think, for Citizens it's a natural Reflection Point. Um, the next chapter for the bank and kind of work out us here, might need to shift a little bit. Um uh, what's going to get us to the next phase? And so, uh, good to just pull way back and, uh, have a broad lens on that. And then to Bruce's point, you combine, that with the market dynamics, that things are changing very, very fast. The use cases, on AI are becoming a little bit more real versus hopes and dreams. And uh, how do we combine those 2 Dynamics to simplify the business model, get really crisp on where we want to win, and then really reimagine how the bank Works to get things done. In a win-win fashion, uh, faster cheaper for the bank. Uh, better from a customer experience, standpoint from our for our customers. So all things from operating uh,
But uh, you know, it's been 5 or 6 years since we did the last really big top. Uh, and that's probably the right timeline to move from, uh, the smaller programs back to a really large 1. And I would, I would just, uh, also add Matt that, uh, we get to some really good numbers in the medium-term without this. Um, and so, uh, we we are aiming big, uh, on what the potential benefits can be, uh, which could be quite beneficial to the overall Financial metrics. Um, some of that is we'd like to free up the capacity to do more investment in some of our growth initiatives. So, uh, you know, you get that virtuous, uh, Circle going, uh, and uh, so you, you create, uh, some self-funding for the things that you think are going to drive the future. Uh, so you're able to now, uh, accelerate the investment cycle and drive kind of Topline growth and efficiency growth, uh, and clearly, you're not going to spend
Brendan: Everything that you say, if you're going to some of that will drop through uh and uh and benefit uh the the the margin and benefit ultimately the shareholder but then there's some longer term considerations where you can free up, uh, some some investing dollars uh, to actually accelerate the build out of things, like the private Banks. So, uh, so we're pretty excited by it. Um, I don't want to oversell it at this early stage but, uh, stay tuned. We'll be talking more about it, uh, in the next couple of calls.
Speaker Change: Uh that's helpful and then just as you think about kind of some of the upfront costs for this are, are you thinking you can self-fund it like you've been able to offer in the past or anything that we should be mindful of in terms of uh notable items and things like that? Thanks.
It it it, you know, I guess it's TBD. Uh, Matt is um, what we've decided to do now is if they're these are modest costs uh and uh they tend to repeat with each top program. We're kind of not posting them separately and breaking them out. But uh, if there were some big things uh that uh look more like an expenditure of capital uh and would affect the Run rate, we can either call them out or we can notably them but we haven't uh, crossed that bridge at this point.
Speaker Change: Okay, thank you.
The next question.
Speaker Change: With autonomous research, your line is open.
Speaker Change: Hey uh thanks. Good morning. Uh, just 2 quick ones. So first uh on the B side, thanks for giving that color about the 30,000 in the third quarter and capital markets. And we see the guy clearly just wondering if you could talk a little bit more, just about that Capital markets pipeline, what you're seeing underneath on the advisory side and other Capital markets, and how you're feeling about the Outlook there.
Sure. Uh, let me just start and I'll quickly flip it to bond. But, uh, what I would say that, uh, uh, is, uh, is a real positive is that we do have some diversity in uh the fees within Capital markets. So uh, we started to see uh, the interestingly, the equity markets start to come to life. And so we participated in some IPOs in the second quarter, uh, Banks indicated low Market, stayed strong throughout the quarter. Uh, there was a pause in, uh, debt Market, uh deals. Uh,
Speaker Change: Uh early in the quarter and then the the kind of overall macro uncertainty uh is probably has the biggest impact on m&a.
Speaker Change: And people's willingness to go forward with deals and close deals. Uh, so uh I think that right now we have a huge Tailwind because of the deals that pushed that could have closed in, uh, Q2 or were expected to that pushed into Q3. But beyond that, we're seeing that pipeline refill. We think the equity Market continues a bit, uh, syndicated loan market and then the the debt Market should come back as well. So, we might be firing on all cylinders, but I'll turn that over to Don. I want, I won't go all the way there because I'll get my budget changed for the year. Um, but we are seeing, you know, remember that, you know, away from m&a which is is obviously advisory and and um, actually working with a lot of our private companies for generational changes.
Businesses, or even some of the equity businesses. It's largely been a refinancing of capital structure, kind of exercise. And we haven't really seen the new money engine kick in, uh, in in size yet, and it feels to me, like that's happening as I'm looking at our pipelines that we're starting to see the. And it's not just continuation funds from the private Equity guys, which is the flavor of the month, but they're beginning to actually transact in a much more significant way. So you're seeing the whole private complex beginning to, uh, you know, um, forward and look to put Capital to use whether that is a third quarter event or a fourth quarter event. I'm not totally sure yet, but the pipelines feel pretty good. So, um, I'm I'm more optimistic than I've been in a while in terms of momentum across the Diversified portfolio that Bruce mentioned in terms of cap marketing.
Speaker Change: Okay. Great. And then just it's clear to see like the the mortgage over earning in the in the quarter. And so that's clear in the forward guide, just the other was a bunch of smattering of items was there. Anything noted we sizable in there or what a better run rate is for that other piece. Thanks guys.
Speaker Change: I I I would just say there uh Ken that um you know that other income line is got a collection of small things that uh you kind of have to take a a view of the full year on that, that you're going to have some quarters where things run a little light in some quarters where they run a little heavier. Uh and so um I think that kind of evens out over the course of the year. So there's nothing really uh sizable uh and noteworthy to call out there. Um it just seemed like a few things broke our way, and less things broke our way in the in the first quarter.
Speaker Change: Yep, perfect. Thank you.
Speaker Change: The next question comes from Stephen alexopoulos with TD Cowen, your line is open.
Stephen Alexopoulos: Hey, good morning, everyone.
Speaker Change: Hey.
Stephen Alexopoulos: I wanted to start. So, first on the private bank. So if we look at the 12 billion deposit Target for the end of this year, I know the trends aren't linear but just give it what we saw. 2 Cube versus 1 Cube. What gives you the confidence, you know, it's roughly 3 billion or so growth for the second half. Can you talk about that?
Speaker Change: Yeah. Uh well as as John mentioned in his comments, uh, we're mid mid July. We're already up over 9 and a half billion. And so, the, the 8.7, if you look at the average deposit growth was quite healthy. Had some
Um, positive noise at the end of q1, that flowed back out seasonally. And then we had some lumpy couple of days at the end of this quarter. So looking at the average balance is probably the right way to do it on the underlying momentum and we're starting to see that ramp back up. So you know it is true, we'll need a strong um strong summer and fall and a strong close of the year to get to get to the numbers. But we see the demand there. Uh, the platform is scaling, our Bankers are hitting their stride. Uh, they're getting used to the platform and used to the bank, uh, that we still see the white space as nobody has truly emerged to cover it. We're still seeing strong inflows and uh, so demand is demand is high. It's going to be about execution. Uh and and uh and and the underlying Pace, I think needs to be in line, to maybe slightly better than what we saw in the second quarter for us to get there. But we've got confidence that the that's the case. We also have had, um, some, some new teams that have come on in, in Southern California as an example that are just getting their feet under them. So we have some positivity there and very targeted. We've added a
Speaker Change: You folks in a handful of the markets. So uh there's a lot of Dynamics going into that. It certainly is an ambitious uh Target for us. But we do have confidence, we can get there.
Speaker Change: Okay.
That's helpful. And then for my follow-up. So this commentary or reimagining debate the bank is really fascinating.
Speaker Change: um, when you talk to most banks,
Speaker Change: And they talk about agent AI. It tends to.
Nerve and CRM.
Speaker Change: Focused.
Speaker Change: Seems that this is much broader. Are you? Are you guys a, you know, is this like everything on the table client experience cost saves risk. Mitigation are you looking at everything? And then if you are, it's amazing, if you could pay for that, not to see an increase in
Expenses. Because if you look at the large Banks, they need to spend first to start seeing the benefits. Could you unpack that a bit for us?
Structure from a real estate standpoint. There's a, a lot of other more traditional things that we've, we've hygiene cleaned up, uh, on the various top initiatives, and now we're going to take, you know, an even bigger step back, so it will be a myriad of things. Um, and so our hope is, and this is what we're going to scope out through the the summer period, uh, that we can, um, you know, sequence. All these investments in a way that has it smart and logical and uh, have some quick wins that can maybe supplement some of the ideas that take a longer time. But the reason the reason we're having a, a much longer window in this top versus the other top, uh, is, is that some of these initiatives do take a little bit more time uh, for the ship to come, and we want to take that medium-term longer term lens on this. So, we're planting the right seeds. Not not just to impact the next year or 2, but impact the next 3 to 5 years. And so, that's a big, I think a big difference in how we're approaching this program that, um, allows us to be a lot more strategic. Yeah. And I, I would just, uh, add also that the, uh, pace of innovation in this space, uh, particularly around
Speaker Change: Around around a gentic, uh, is really, uh, mind-boggling. So uh, when you look back 6 months ago and where was this, and how ready for purpose were some of these solutions to kind of, where are they today? And I know Brendon. You just spent a day with a bunch of fintechs uh, and and startups to try to look at this and kick the tires a little harder, but uh, it's quite dramatic. And so, uh, you know, the big Banks may be spending a lot of money and uh, doing some kind of pioneer work.
Speaker Change: Work. Uh, oh, I think they'll be kind of more ready-made, TurnKey Solutions available that, uh, hopefully we can take advantage of.
Got it.
Yep.
Thank you up. Next is John pancari with evercore. Your line is open.
Speaker Change: Morning. Uh, just want to ask a little bit around uh, competitive Dynamics. You have a couple of peers out there citing, some intensifying competition. We've heard both a bit on the loan price and side as well as on uh the deposits. And so I just want to see if you can give us a little bit more color. What you're seeing there in terms of um, on the deposit side, uh, your confidence in your data expectations and are you seeing any of that pressure? And then, on the loan pricing side, specifically, as you see some acceleration in loan growth and your strategies. There are, you are you seeing some, um, intensifying competition from Banks and non-banks?
Speaker Change: Let's start with Don on Commercial. Yeah, so, um, John. Yes, the answer is it's competitive out there. It's always competitive but I think, you know, our our secret sauce and what we're trying to do is stay focused on, you know, multi-product relationships with mid-size companies and we've carved out a niche, and I think we've got a incredibly strong.
Speaker Change: Delivery model which allows us not to just think about making loans or gathering deposits, but doing a multitude of things with our with our customers. And that's what we've tried to build over the last 10 years. And it's it's interesting that teams that we've hired in Florida and California have said the same thing to me, which is wow, the way we're showing up as a company across product and Industry, expertise and core banking is so different than my old old firm showed up. And it's becoming the differentiator of trying to win of being able to win business and win, you know, broad wallet relationships with people. I mean, we're never going to make a lot of money lending money to a, to a company. I mean, it's about everything else we do with that company. So, you know, that's the way we try to make the market and I've never been in a situation in my 41 years of doing this where I haven't had a ton of competition and you just got
Speaker Change: To be day to day more focused and day-to-day better. Um, to create the kind of relationships that you want to um bring onto the balance sheet. And then also pass on the things where you're not going to make a lot of money where it's just a price gain and and that's what BSO has been about for us. So we're really trying to rotate Capital to where we can build those enduring relationships and you know knock woods so far so good and you know, the whole
Speaker Change: If you look at private credit which is what a lot of people like to talk about, we're now Bankers to the private credit complex and we've created a an amazing business banking. The private credit uh uh complex that actually is
Speaker Change: Trying to stay ahead of the trends and trying to stay smart about where the, where the market is going. And then having your delivery cost being reasonable, which is what Brendan's going to try to to lead in terms of of the reimagining. The bank is really the name of the game. How do you, how do you generate good? Earning assets and good deposit growth with a reasonable expense base, right? Uh, same thing is on my businesses. It's it's, it is really intense. It's always been intense. I think it's largely been unchanged recently. Uh, so a lot of competition out there. There's always some irrational uh folks pricing. Um, uh, uh, out there. I think what we're spending a little bit more time on is that if rates pull back uh you know, how do we play that and to to some competitors play it a little bit more?
Or irrationally on the deposit side and hold serve for a while to gain deposits and deteriorate margins. Or chase the market down really fast on lending. We'll see what happens. But right now, uh, we're we're competing well in a really intense Market. Um, you know, when it's relationship led to Don's point, you tend to have a little bit more Flex in, you know, pricing on both sides, deposits and lending. Uh, if you've got truly the primary banking relationship, you don't have to be the very best so that helps a lot as we rebounded, the franchise and deep relationship based banking both in retail and and private banking. And you know, 1 thing you can count on us on is being returned focused. So we're not going to chase the market down. If if competitive Dynamics get super intense, we'll make sure we're doing the right thing for Capital allocation in the right returns. We're very committed to on private as an example to have
Speaker Change: 20 to 24% return profile. So we're going to stick to our guns, their price loans and deposits that we believe is uh appropriate for market conditions, and then we'll have to compete and win on relationships and we're doing that so far and I I don't expect that to change it just too, just too quick items here. Uh, to to uh, add on top of that, 1 is uh, spreads are holding in. We're holding our discipline on the commercial lending, side of things and returns and and in retail and consumer, look good. On the deposit side, we've had this Outlook of low to mid-50s, cumulative, beta over the medium-term and already through the end of the second quarter. We're at 54%, which is, um, you know, better than better than median better than average and really, um, really, really strong performance so far this cycle. And we'll, uh, we we have all of the, uh, all of the foundation and and mindset, is there to continue that performance over the medium term? Maybe 1 more point. I think we, we've made this on other calls that we've had probably a little bit more leverage than some of the other peers when you think about citizens access and now the private Banks
Speaker Change: so so depending on how competitive Dynamics blacks, across all the segments we can you know, capitalize where there's better ground
Stephen Alexopoulos: Okay. Great, thanks. And then, and then Bruce, just curious on your updated thoughts around the m&a, backdrop. We've seen some, you know, a resumption of deals. Um, amid the regional Banks, just want to get your thoughts there. And I and, and I know you've kind of implied that over time. If you get the, you know, the you got to work towards.
Stephen Alexopoulos: Um you know your results and then that will drive a a multiple in your stock and everything and and just curious how you see citizens as being a potential player in the wave of consolidation that we could see.
Stephen Alexopoulos: Yeah, so I I, I think nothing's really changed their not withstanding, a small deal that was announced last week. But, uh, you know, our Focus right now is driving this organic growth, we have a huge opportunity here to, uh, get our Roi back. Where we'd like it to be to capture that white space at First Republic vacated and, uh, build up our private bank and private wealth business. And, uh, really drive the, the growth in the New York City Metro Market that, uh, is sitting there in front of us to execute on. So, uh, I want to not get distracted and make sure that job 1 is to continue to drive, great execution and drive the Roxy higher. Uh, I have said though, if there's, you know, a, a a really attractive opportunity, uh, down the road. I, I have total confidence in this leadership team and our ability to integrate that and execute on that. But, you know, you'd have to be pretty high bar, to make sure that you had, uh,
Stephen Alexopoulos: The financials, the Strategic, the cultural fit uh in order to go do something, but I think that's more kind of down the road than it is uh imminently.
Bruce Banson: Got it. All right. Thanks Bruce.
Stephen Alexopoulos: Yep.
okay, next
Stephen Alexopoulos: Denise, that's all yet. Oh, I'm so sorry. I had my mute button on. That is from Menan. Gosalia with Morgan Stanley. Your line is open.
Menan Gosalia: Good morning all. Um, I had a quick question on credit. Um,
Speaker Change: Given that the officer Reserve was down about 50 basis points. Um, can you update us on what you're seeing in the space? And um, I guess if things were improving how you're thinking about managing that reserve and the overall ACL over the next few quarters,
Okay, I'll just go and start off there. Thanks for the question. Um, we're seeing some really good Trends, uh, in credit as you saw on some of our results, you know, broadly, um, charge offs being down, um, you know, from last quarter to this and expected to be down again. So you've got a, we're keeping an eye on that but the trends look good, not a cool Trends, look very good. Um, and um, and lastly, as you're asking about with respect to General office, I mean, this is, I think the thing to keep an eye on is, is the dollar amount of reserves that were allocating to this book. Uh, We've we, we are down this quarter about 30 million or so, uh, that rate will jump around a little bit, but this is the first quarter where we're really charging off against the reserve and don't feel the need to reproduce, for those charge offs that that reflects some expectation of stability and valuations as well as, uh, you know, an understanding and an Outlook with respect to probability of default that are all, uh, feel feel, um, you know,
Well, controlled and refinanced at this stage, so, so that's been a big level of uncertainty that we, we, um, have a sense here, may may be starting to get behind us. Uh, We've, uh, we've had Peak credit losses are behind us, uh, we believe for this, for this cycle. As well, as I think we mentioned Peak U Peak and Nicole's. So, I think that is all
Trending. Well, and I think the last thing to keep in mind is our front book back book. So as we're running off other areas of the book, such as C, uh, outside of general office, uh, most of the front book has a lower provision and ACL need compared to what's getting run off, including in non-core. So a lot of those Trends, uh, would be consistent with coverage levels, uh, being adequate now and, uh, possibly some opportunity to, uh, moderate that over time, um, you know, as long as the macro holds in. So, you know, just, you know, just to wrap it all up. A lot of really solid Tailwind on the credit side, um, and feeling like, um, that looks good for the rest of the year.
And you want to have anything on office. Know I just I just say that, you know, I don't think we've moved a office property into our work at group in the last year. So you know, the the problem children who are going through the workout process and where we've got the reserves, put up are well identified and, and well through their restructuring process and the rest of the book, there's some good Tailwind in terms of the office.
Speaker Change: Environment in in different cities, across the country, notably New York City, which is, uh, which is, is, is quite strong. So I think, you know, if you go back 2 or 3 years, now we we had a lot of uncertainty right now. We feel like we've got to really box, we're comfortable with, with where we've got things reserved, as John said, okay, good.
Speaker Change: It was very helpful. Um and then Bruce, um, I I don't think I heard you talk about stablecoin. When you spoke about the reimagining the bank initiative um is that an area of focus. And if that is, how are you thinking about the Investments there, and in general, what impact do you think that will have on? Uh, yeah. Yeah, I wouldn't, I wouldn't put that under the umbrella of reimagining the bank, I think that's more kind of a initiative uh for us to uh develop under kind of our overall payments business and payment strategy. Um and you know I think it's uh got a lot of Buzz right now and there's uh some uh potential uh, use cases that uh, that may uh ultimately establish themselves and uh, you know, cross border payments is 1, everybody's talking about. But, uh, we're certainly, uh, monitoring developments there. We see. Uh, you always want to make sure that you're, uh, capturing opportunities and minimizing risks when you see these Trends develop.
Speaker Change: But I think we've got, you know, smart people looking at these things, we're talking to our customers, we want to be there to serve our customers. Um, so I think we're positioned well, but I wouldn't call it out as something that in the near term is uh, that dramatic that it'll have a a dramatic of an impact on us. And a lot of times you're going to look to do uh, these developments in consortia with, with other Banks or leveraging, uh, some of your key vendors, uh, like Fiserv. And so we're looking at all of that, but I don't, I don't think there's a significant, uh, investment, uh, that's staring Us in the face at this point.
Fair enough. Thank you.
Speaker Change: Thank you. The next question comes from Chris McGrady with KBW. Your line is open.
Speaker Change: Oh great. Thanks for putting me in um Bruce on Capital. Allocation broadly given the momentum you have in your Capital markets business. Is there a case to be made to to be up being Capital to the to these businesses? Any anywhere you'd like to lean in a little bit more.
Speaker Change: Um,
Speaker Change: I think it's more of an Opex question that a capital uh question and so uh we've been adding uh coverage bankers and key industry verticals and corporate finance specialists.
Um and so we'll continue to do that. We've added uh coverage Bankers in the Middle Market as Don mentioned in some of the expansion areas building up New York Metro and investing in Florida and California.
Speaker Change: So, a lot of this is people cost, I think we have a good Capital allocation, uh, to do the business that we focus on, uh, and, uh, underwriting limits etc for a bank, our size that are prudent, uh, I think it would be a mistake potentially to say, well, let's just take more swings and raise that, uh, uh, you know, Capital limit and do bigger deals. We tend to, uh, run into the big boys as we move up market. And we also want to stay prudent in terms of uh the risk we're willing to take and uh making sure that we stay granular. So so I'd say,
Speaker Change: They probably know in terms of uh additional Capital uh we could uh continue to see some loan growth. Uh in terms of the sponsors that we cover. We might broaden that Universe a little bit. So that might be 1 place that we uh, earmark a little bit of capital but uh mostly right now it's about about Opex and making sure we have really great people lined up with where we see the best opportunities.
Speaker Change: Yeah, I think that's right. And and I I think where you'll see us over index is probably building depth and Industry specialization as Bruce said in terms of our corporate finance teams, I think we've got, you know, plenty of Talent on our core underwriting desks and our core Capital markets businesses. And uh, we don't feel Capital constrained you know, at all for the business that we're trying to to undertake. So we we have a good complement of m&a professionals as well and so and a lot of that doesn't take Capital right? So that's pure advisory. If we were adding to that it would maybe be uh, to compliment industry verticals. If we go out and buy another Boutique, it might be a place where we think we're a little short and we could benefit from some expertise. But I don't, I don't see a huge amount of taking place there, either. I agree.
Speaker Change: Okay, I appreciate that. And then follow up the comments about charge offs, uh, peeking likely the first quarter in nl's last third, if I separate the the office discussion which, which you just handled anything notable to to, um,
Speaker Change: To call out in terms of inflows or inflow reversals over the last couple quarters. They gave you confidence in those numbers. Thanks.
Speaker Change: Yeah, no, the things are things are, uh, are playing out, you know, as expected. Um, you know, very nicely, uh, and uh, uh so uh, I think the, the macro, uh, stability. We, we were a little little conservative with the macro this quarter, um, you know, so I think we're well, positioned for any uncertainties going forward with respect to tariffs or, or, or or, or unemployment, which we which we actually raised to touch in the second quarter um, but to remain conservative on on that Outlook but when it comes to the bakbuk performance, it's actually, you know, playing out as expected. And, um, and next quarter, we expect to charge us to be down slightly as we mentioned. So, yeah. Nothing nothing to really call out and I, I, I think part of that is just, uh, our risk appetite and, uh, where we focus our strategy. So in consumer, uh, we're focused more on mass affluent. And affluent is our sweet spot. So we have kind of less exposure to the mass customer who's the first
Speaker Change: That's great. Thanks much.
Speaker Change: The next question.
Speaker Change: Comes from Scott sifers with.
Scott Sifers: Hey, thanks guys. Um, I think most of my questions have been answered. Did want to ask uh, Bruce Brandon. Just how does the private bank build out look after we get, um, you know, passed this year or after you hit the you know, 12 million deposit, 7 billion loan and 11 billion assets under management. Uh Target. Um, you know, will we kind of be you've talked about the white space so presumably there's much more to do. But you know, is there a point where we get to toward more of a critical mass where profitability kind of begins to fly will upon itself? Or will we continue to add more more teams at at similar Pace to the last year or so
Speaker Change: Yeah, let me start and Brandon. You can offer some color but uh, you know, I think it was really important, uh, when we when we initiated this startup that we put some markers out there and we stayed disciplined, and we demonstrated that we could grow this business, uh, in a prudent fashion, uh, in a sustainable fashion, uh, profitably, and that we would generate good returns and so we we felt that discipline, uh, We've made, you know, and it partly it also makes sense because there's a lot to build, uh, in support, uh, Before You Really Turn the crank, you want to make sure you've got the service levels and the systems, and the customer interfaces at the right level. So that all came together saying that we're going to kind of grow.
Speaker Change: Gradually through 2025, uh, once we hit those markers which we expect to do. Uh, then you know, where do you go from there? And I think, uh, continuing to add more private banking teams, uh, in attractive locations as part of the equation, uh, opening more private Bank offices, uh, that are kind of attractive, uh, ground level facilities, we just opened 1 this week, uh, in uh, New York City, you can go in for a Koosh, uh, in 52 and 6 on the corner of 50. So I can in 6, it's an awesome showcase for the private Banks. So, uh, so we'll be doing more of that. Uh, we're ramping up the wealth teams so we can, uh, have, uh, kind of better Solutions set for, uh, folks, uh, both banking needs and their wealth needs as well. And so, I would expect that to continue. But, you know, if you go out 3 to 5 years, this can grow quite a bit from being
Speaker Change: You know, 5 to 6%, accretive to the bottom line, it can can easily scale up from there and I think we can do it profitably. So, Brendon, yeah, only thing I would add is uh, it's it's incredibly important to us that we, um, stay true to the financial guard rails. We put in place in terms of having this be, uh, you know, the loan growth, be driven by first securing high-quality funding and that will be a governor on our growth that we won't. We won't get out over our skis and that we have this be a financial profile that has
Speaker Change: Let's return a recent to the franchise versus dilution. Uh, so those things are hard to be considerations. Having said that I agree with everything Bruce said, the opportunity is still very big. Uh, and as we consider growth, you know, it ties a little bit into the reimagining, the bank, if we can self fund the journey. Maybe we'll go a little faster. But uh, we're going to stay very true to the value proposition in the guardrail. We believe there's a white space in the integration of banking and wealth. And so we need talent that believes that too and can scale. And we certainly have other markets that we operate in today and Retail and commercial that we're not yet in and private banking that are great markets for, um, us to round out our full Bank proposition and plant, a private banking flag, uh, as well as sort of, some of the newer markets, like, Florida and California. That is still provide a lot of running room for growth. So, uh, right now we're focused on delivering the year, but, uh, we definitely see opportunity for sustained growth into the future in 26 and Beyond, yep. So we'll give you a more color on that. Actually, when we get to the January guide and we talk about 2026, but, uh, you know, I I'd like to be leaning forward uh, as early as next year.
Speaker Change: To uh actually continue to scale it up.
Speaker Change: Perfect. All right. Thank you.
Speaker Change: Ibrahim puno wallet with Bank of America, your line is open
Good morning. Appreciate the call has gone on too long. Just a couple of quick follow-ups 1.
In terms of outlook, for deposit costs. It feels like CDs. Still, have some room to go, but then we saw the checking account, uh, uh, rates move up quarter over quarter. So, just wondering if we don't get any rate, Cuts John, or deposit cost still sending lower through the second half of the year.
Speaker Change: That are 120 to 150 basis points below um where uh where the maturity rates are. So the really nice front book back book. There it steps down a tiny bit in the third quarter. So down a touch maybe in the neighborhood of 6 billion and maturities but still a really nice Tailwind for that front book, back book and, and there's still more in the fourth quarter. So, I think we have got, we've got nice benefit, um, to be able to have the opportunity on the, on the deposit side. I think, I think, as I mentioned earlier, uh, keeping an eye on our deposit. Yeah, cumulative deposit data, where we perform quite well, we're at 54% for the end of the second quarter. That's, uh, that's better than average. And um, and we feel very, very good about uh, deposit costs for the rest of the year based on not only interest, bearing costs themselves. But also some opportunities uh, to stabilize and improve the mix.
Speaker Change: Got it and just 1 quick 1 for you Don when we think about the lending Outlook and not sure if you addressed this any sign any uptake on the sponsor left side, anything about Capital call line lending, I see any pick up there and how much of that kind of baked in for the back half? Thanks.
Speaker Change: Yeah, we've seen, we've seen about a 8% increase in capital, call utilization in the second quarter. So that drove a little bit of our loan growth in general. And the trending, I heard from the team yesterday if they continue to expect further growth and utilization as we get it.
Speaker Change: Without adding a lot of new capital call lines, but we're just seeing utilization revert to normal. And we're about, you know, 6 6 points below our, our long-term average utilization in our Capital call line. So, you know, you see in the deal, announcements going on out there, Capital call lines, get driven by, not the deals we're doing. But obviously by the broad activity of the PE complex and they're beginning to get more active. So we we think we, there's some continued upside and and utilization on that side of things.
Okay, I think that's our last question.
Speaker Change: Uh great uh before I leave uh I just want to take the opportunity to thank John Woods for his uh contribution along, our transformation Journey. Uh it's been great working with you John and uh anyway we wish you well on your next chapter. Thank you Bruce. Okay. And uh with that uh let me thank everybody for dialing in today uh we appreciate your interest and support uh have a great day.
Speaker Change: Includes today is conference call. Thank you for your participation. You may now disconnect