Citizens Financial Group, Inc. (CFG) Earnings Call Transcript & Summary

Next up, we have Citizens Financial Group. I am joined by John Woods, Citizens' CFO. We have Kristin Silberberg here with us as well, who heads up Investor Relations, real-life human beings. It's great. John, it's good to have you back in Florida. You have a perfect record, when we allow you to come to this conference in Florida. So it's good to have you on site here. And I would have to say, I mean, Citizens also has a pretty good record of meeting, if not exceeding, investor expectations. So we'll give you both of those.

Awesome. Awesome.

So we've got a lot to cover with you. We're going to do this as a fireside chat. I will happily take questions at the end. I will pause along the way. So if you want to ask a question on topic, just raise your hand, and I'll catch you along the way.

But boy, let's start at the top. It's a very different environment than when we sat here in 2020, and rates were dropping. So let's start, if you will, with kind of the macro indicators in the operating environment in January, [Technical Difficulty] outlook for solid economic growth of about 4% with several rate hikes. So what are you seeing?

Yes. What a great question. It is great to be here. I was sweating the COVID test, but all negative, so that's good. But the -- yes, I mean, I think the environment has been extremely volatile, to say the least. Back at earnings time, we had anchored our commentary on an early January curve, where there were 3 rate hikes, which seems, I guess, quite quaint at this point, given how much things have changed since then. So we are monitoring that and keeping an eye on what that would mean for us and in some ways, even reacting to it here and there, when it's appropriate in terms of actions that we should take. But if you believe the yield curve, which jumps around a lot, if you think that we're going to get 6 or 7 tightenings in '22, that will be a significant benefit for us on the NII line. And we'll consume all of that and come back out with our views on that later in the quarter, but -- and as you do earnings -- as we do earnings in April. But I think, just to add a metric, I mean, at earnings, we did talk about $30 million to $35 million of NII for every 25 basis points. And so there's a lot of NII to be had there as the yield curve plays out, and most of that's in the short end. So about $20 million of been on the short end, $10 million to $15 million on the long end. And the yield curve last week had Fed funds getting to 2%, that's pretty significant. That's an extra 100 basis points than we were thinking. So it almost feels like the fourth quarter, the environment we thought was going to exist in the fourth quarter, has been, in many ways, accelerated to the first quarter and even then some. So yes, lots of upside there.

And beyond the level of interest rates and the yield curve, what are you seeing and hearing from your customers, both on the retail side and the commercial side, right now? And is there -- what they're communicating as kind of as strong as what you're seeing in these macro data points?

Yes. I mean, I think we read the signals that, first off, on the consumer side, the consumer is extremely strong. Certainly, a lot of cash around spend levels were strong into the end of last year. It's typically a seasonal lull, as you get into the early part of the year into the first quarter and that -- we saw that, and I think the whole industry did. But we expect the spend levels will start to, kind of, increase, as the Omicron and environmental factors like the weather, et cetera, abate. So very strong on the consumer side. On the commercial side, we saw gradual growth in utilization, which tends to be a really good signal of economic activity, with inventories building and CapEx starting to become more active. So we saw some of that into the fourth quarter. We -- our outlook was that, that would continue into the first quarter. We are continuing to see a steady increase in utilization in our, sort of, bread-and-butter Commercial Banking business. When you think about the other parts of our business that are more transaction and event focus, such as M&A finance, there's a lot of activity there, has been into the end of last year. There's -- we're seeing some corporate-to-corporate activity in the M&A space, which is driving some borrowing, and we have a huge sponsor business. And so in the PE space, that activity continues. And utilization in those businesses are actually higher. So from a mix perspective, we expect our utilization levels to be up quite a bit. But when you dial down into the core bread and butter, it's a steady rise rather than a spike. So nice, strong and steady recovery of utilization expected, as you get into the first quarter.

Okay. Okay. So let's talk about longer term, you gave us -- we jumped ahead to the NII. So let's circle back into the, kind of, the longer-term anticipated benefits from rising interest rates. And when you expect to see -- and NIM is a -- it's math, right? I mean, there's a denominator at play here, too. But when do you start to see meaningful NIM expansion?

Yes. I mean, rates are very powerful. I gave you the math earlier. Our net interest margin, I think we ended -- if you exclude cash and PPP, I think we ended the year around 2.75% or so. So keep that normalized because we expect excess cash to really be out of the system by the end of the year. I mean, I think we expect NIM expansion to come along with the rate curve, pretty direct impact. Not surprising to hear that. And I suspect that you could see us at 3% or higher by the end of the year, on an exit rate. And so you talk about adding 25 basis points on an apples-to-apples basis, more than that when you're just nominal because NIM is depressed right now because of excess cash. So I think, we were at 2.65% nominally on NIM, unadjusted, heading to something around 3%, when you get to the end of the year.

That would be nice to see.

If the yield curve occurs -- right, that's the thing. I mean, the yield curve, you said, are we going to get 7 hikes? Then, you could see 3%. If you don't get 7 hikes, then you won't. And I think you mentioned, it's math. And then we gave the math earlier on our call, about what would happen on NII, but that math is really all net interest margin driven, that $30 million to $35 million is all about net interest margins and rate contribution to NII. There are other drivers of NII, including loan growth and loan spreads and those kinds of things that you've got to keep an eye on. But all of that is about the net interest margin story, which is quite good. I mean, I think -- and even more broadly, I mean, in the early part of the hiking cycle, you expect deposit betas to be very well controlled, given all of the liquidity in the system. And for us, idiosyncratically, I mean, in the last hiking cycle, our deposit betas were in the mid-40s, I think, wire to wire, from the beginning to end. And we expect that will be much lower, this time around, significantly lower mass -- significant product maturity, a very different liquidity profile heading into this cycle versus last, and the mix of our deposits is much better this cycle versus last -- much fewer -- much lower reliance on CDs and more noninterest-bearing than interest-bearing. So all of that is considered and wrapped into our -- the NIM potential and the NII potential, all driven by our asset sensitivity, which was 10% at the end of the year.

So then if I think about the deposit beta and where you did so much balance sheet optimization and remixing of the deposit base that it totally makes sense that you would be lower this time around and lower relative to your peer group and where you stood. But when we think about something like Citizens Access, how does that figure into the deposit betas?

Yes, that's a good question. I mean, I think the -- first and foremost, the Citizens Access launch was the first phase of a multiphase approach to strategically acquiring customers across the United States. And it's a national focus, and it's a digital focus. So that was the intent. It just so happens that along the way, there's a way to optimize deposit acquisition in a very, very cost-efficient way, no branches, and just a very cost-efficient acquisition of those deposits. And we can pass along the fact that they don't have the same call center support needs. They don't have the same branch personnel support needs. And so the servicing is simpler, a lot less costly to support that. And so we pass that along in rate. But all in, it's a very efficient mechanism of sourcing deposits. and it will show up a little bit on the rate line, but you've got a lot less on the operating expense line as a result of Citizens Access. But more broadly, just the savings and CD product that we launched back in 2018, that was Phase 1. The next phase, we're right in the middle of, we've opened up the storefront for Citizens Access in the fourth quarter. So if you go on to citizensaccess.com, you will see not only deposit products but you'll see a mortgage product and a student loan product. So that storefront has been launched. And in this quarter, we're now launching a marketing campaign, nationally, to drive volume into that storefront. Future phases that are happening throughout the year, we're migrating the platform to a fully cloud-based system. We're launching the mobile app for Citizens Access, we'll have a checking product later in the year, early next, on and on and on. We're building a full-service bank, nationally. So -- and it has -- and it's really the -- to close the circle, we funded that launch with a TOP program. It paid for itself in the middle of the rising-rate cycle, given efficient source of deposits, and it's created strategic optionality for us that we're very excited about, in terms of a fully tech-enabled, fully cloud-enabled bank that lends, provides services and takes deposits, both in terms of savings and checking. So it'll -- stay tuned and lots of exciting things happening on the Citizens Access front.

Okay. We're going to come back and fold that into the strategic discussion as well and how that fits into some of the other activities going on at Citizens. But to close the loop then on NII, and you touched on the loan growth piece and the continued growth in the commercial space, I am curious, just to be clear on that, where we see in the H.8 data, the fourth quarter was great, end of the fourth quarter was even better. And then into January and the early part of February, you're starting to see some flattening out in the loan balances. And so I'm curious on the commercial lending side, is it that -- is it deal-related financing? Is it inventory and supply chain issues? What is it that's slowing down the loan growth at the moment, and maybe it's just a temporary 4-week factor digesting Q4? But what are you actually seeing on the commercial side, when you break it down?

Yes. I mean, I think, broadly, we see -- I might say that originations may be slowing, but we see payoffs slowing as well. So you may be focused on the origination side of things, which I think we can, kind of, agree that, that's happening. And there's a seasonal aspect to the first quarter. Deal activity, sort of, takes a little bit of a breather in January, early February. And a lot of loan growth has come from deal-related activity. And so we see both sides of the ledger. Our large Capital Markets business gives us a lens into what's happening in terms of the lending side of our business as well. And so I think there's some of that going on with M&A finance rebuilding in the middle of 1Q. There's some of that going on. But I would tell you that we're going to -- we're likely to see loan growth at H.8 levels or better in the early part of the year. And so that's what we've been monitoring. And we had strong spot growth in the fourth quarter, and we'll get the full-quarter effect of that in 1Q. So loan growth seems fine. I would add that we've got the -- not just the traditional middle market, mid-corporate lending across all of our regions, but we also have a number of corporate finance levers, including asset-backed finance and our PE sponsor, subscription line businesses that are also contributing. So as I mentioned, we'll be at H.8 or better, on the commercial side.

Okay. And when we think about -- you talked about the utilization rates increasing. I'm curious, the bigger you build your Capital Markets business, the more you become indifferent between how your clients finance in many respects. Does this level of disintermediation impact where line utilization goes, over time?

Yes. I mean, I think -- well, I guess the way I would answer that is, we, nevertheless, are seeing line utilization rise within each of our given categories of line usage. We are seeing a little bit of contribution, in terms of mix, so more corporate finance, line utilization, where the utilizations are higher. I think that from a disintermediation perspective, it's interesting with rates rising, some of that -- we see some of that -- the business that would have gone to the bond market, we see some of that coming back to the syndication market. And that plays to our strength, in terms of our traditional, long-standing loan syndication business that serves both corporates and sponsors. And so whereas that may -- that remains a secular trend, you have non-bank participation in commercial lending, and that will be -- that will potentially be, and maybe already is, the majority of commercial lending today. But that's a big part of what we -- who we've been for a long time. We've always had a direct corporate customer base, but we've been a very large sponsor finance bank for quite some time, and that's growing. So we're not completely indifferent, but we've got very strong businesses on both sides of this. And in a period where it appears that bond business is coming back to loan syndication, we're there to take that business for corporates, and we're also there to support our sponsors as well.

Okay. And then consumer borrowing behavior, kind of, mortgage versus non-mortgage, and really focusing on the non-mortgage at this point. But what are you seeing, in terms of payment rates and revolving behavior now, across the various products?

Yes. We -- so I would -- I guess I would break it down into -- if you want to -- in the mortgage space, we're in transition to a purchase market, right? It was a refi market for a long time, maybe 60-or-higher percent of volumes coming from refinance. And now, that's going to flip around. And again, this is back to the whole theme of environment that we were thinking would happen in 4Q, happening possibly sooner is where you might see purchase being a majority of locks and originations in the coming weeks. If the mortgage rate stays above 4%, that's likely what we're going to see. That's in the mortgage space. And you'll see prepayments start to fall, and they've already begun that and with the implications on the servicing side of the business, et cetera. But in terms of lending -- the other consumer lending categories that we're in, we still see robust activity in the auto space. Rates in this -- we have 2 different student businesses. One is the In-school business and the other is the Refinance business. Refinance business is pretty similar to the Mortgage business. Rates rise, it tends to drop off a bit. And it had already had a little bit of a drop off, given the moratoriums and payment holidays that the government has in place. So -- but if rates rise, that will tend to be a little bit of a headwind in the refi space. But in general, auto is still robust. Mortgage is still robust. In-school students still driving good flows. And we also have our Citizens Pay business, which we're growing by leaps and bounds, in terms of the number of merchants that we have on that platform. So we're feeling good about the diversification on the consumer side and on the commercial side, in terms of being able to meet our customers where they want us to finance their activities.

Okay. So when we talked about Citizens Access, we're going to switch gears to expenses and inflation a little bit. You talked about having financed the Citizens Access build-out with the TOP program. And I'm just kind of curious, we're on like TOP 7 now, right?

We are. We are.

With inflation at its current pace, how are you managing? Do you need to raise the TOP objective for this year? Is there enough flexibility to continue to invest as much as you want to invest and meet your efficiency goals?

Yes. I mean, I think -- well, we get some tailwind from -- as you may recall, TOP 6 was more of a transformational program and north of $400 million, I think it was $425 million, that we hit a run rate contributions at the end of '21. And we get a full-year effect of that in '22. We launch another TOP 7 program. We get the in-year benefit in a full year. And it just -- it starts to compound on itself. So these are very symbiotic, these programs. And it creates an ability and a little bit of capacity to invest in where we want to invest. We have a big agenda on the consumer and commercial side. We're still building and innovating this bank, adding products, adding coverage across all of our businesses. I think that it's a balancing act. But we, nevertheless, are able to be more efficient with our spend, number one, have the compounding effect of the TOP programs, number two, and still be able to have these exciting sort of programs in place. And maybe just a quick sidebar on how efficient we are with our spend. I mean, we've -- over the last several years, we've migrated from a waterfall delivery organization for tech enhancement and delivery to an agile organization. So we now have our entire delivery organization in agile pods, hundreds of them. And the -- instead of saying, "Hey, 18 months from now, we're going to launch this big -- kind of, big bang approach to a new tech system or that kind of thing, where our release is -- our release frequency has just ramped up to daily, weekly, monthly." And so we're getting much more efficient delivery for customers and in, sort of, tip-of-the-spear product development than we ever have. And so that's a tailwind, or the compounding effect of TOP is a tailwind. And this is something that we've done for 8 years -- sort of 8 years in a row, TOP 7, but TOP 6 was a 2-year program. So it's basic -- I saw that look on your face. It's been about 8 years, where every year, it's basically how we are managing what we want to invest in and how do we, sort of, fund it, so that we are investing in long-term strategic bets. But nevertheless, still allowing along the way, having profitability that demonstrates that we have financial discipline.

So if I think about the year ahead and all the investing that you've been doing and lots of product rollout and lots of tuck-in acquisitions, you went a little bit beyond a tuck-in in 2021. You made a lot of acquisitions in 2021.

Yes. We did.

You took some of us a little bit by surprise, along the way. So when we think about 2022 and how much you can expand organically with new product developments, and you talked about what you're doing in Citizens Access, which kind of answers the question to some degree, but how much is this an integration year as opposed to an organic growth year?

Yes. It's a good question. I mean, I think that when you look at the acquisitions we've done in '21, there are -- most of them were relatively small, but important in terms of product impact to customers. So we did the Willamette acquisition, which created a valuation capability for our M&A advisory customers. And so that's been acquired, integrated. We did the JMP acquisition, which was larger and more impactful, as it relates to getting into the equities business. But that's been closed and already effectively integrated. And so you think about what we've done on the fee-based side, those things are just now in the category of contributing. HSBC, it's a branch deal, it's important. We're closing on it this weekend.

Tomorrow?

Yes. Well, exactly. Well, the legal part of it is tomorrow, and the -- but in terms of actually having the customers be able to engage with us over -- it's a close and convert. So they'll be engaging in the Citizens ecosystem, call it Monday. And so it's going to be a long weekend for a number of our consumer colleagues. But that's going to be closed and converted. And so a lot of that is really behind us. The integrations of everything I articulated, they are very straightforward and just part of, kind of, a BAU kind of construct for the most part. I mean, HSBC entering a new geography, a little different. We're going to have a brand splash on that, as you get out into 2022. It will be fun to go through Manhattan and see Citizens', sort of, branches and billboards. And for HSBC, I mean, I think, coming back to the first quarter, we'll start to see NII contributions and the run rate on expenses, you've got the branches and the people. That will all be like a half quarter there. But -- so all of that is fine. Investors is a bigger deal.

Before we go to investors, let's just stay on the HSBC for 1 minute, since that is -- I mean that's as imminent, now.

Yes.

And I think, on the January earnings call, you and Bruce spoke a lot about all the preparation for the integration, given the close and convert is immediate. What is the biggest risk that you worry about, over the weekend, in the closing process?

Well, first and foremost is, we want to deliver on the promises that we made to the HSBC customer base. And those promises were being able to have access to your accounts at certain times, on certain days, and that's what we want to deliver on. And that's what I -- I know Brendan Coughlin, the Head of Consumer, is worried about that, and I worry about that, Bruce worries about that. I mean, first and foremost is those customers that are coming on to our platform, we've given them a roadmap for the weekend. We want them to be able to access their accounts, when we told them that they would be able to access their accounts. And that's the thing I worry about the most. And that's what we're focused on. And we've had a number of dry runs and a number of mock conversions, and they've all gone quite well. So we feel really confident. And let's -- we'll see how it goes, but we feel very confident on that.

We'll cross our fingers. This is kind of the -- it's a little bit of a dry run for ISBC, which is a much larger transaction for you. So now, I'll let you go on to ISBC. Just -- is it -- we're still on track for the early 2Q closing?

Yes. I mean, I think we would say early 2Q. I think that we -- I think there are a number of banks that are waiting for the Fed to start to break the backlog. And here and there, we've gotten some smaller bank approvals and those kinds of things, but there's a number of larger banks that are still in the queue and in the pipeline. I don't think -- we're not overdue, though. There are some banks that are overdue for their approval. We're not. I mean, for an early 2Q approval, we still have plenty of time to do that or to get that legal day 1 executed, based on what we've planned. And even a short delay is, in the grand scheme of things, not going to be too troublesome, but if...

I think, most people look at it from the standpoint of -- worrying that any delay is signaling that the talk around a kind of less amenable approach to M&A and banking industry consolidation. Do we actually see it materialize in someone's deal being meaningfully delayed? And it doesn't sound like your process is signaling a real change in the action out of the Fed, in a larger transaction.

Yes. Not that we can see. I mean, nothing that would tell us that we wouldn't be able to be on track for -- an early 2Q. But this is Fed watching. So it's not like they're -- not like they're sending us signals that they're not sending anyone else, right? We -- there's nothing we can see that would suggest that we won't be able to close early 2Q.

Perfect. Perfect.

And so that's good. And we're excited about that, but go ahead.

When you put that together with ISBC, sorry to interrupt you, the -- it gives you a real foothold to build in the New York metro market. We'll start to see the green signs pop up. It will be like spring and the green signs popping up.

That works.

It's -- I mean, look, the New York metro market is a very competitive market for sure, as was Boston, as was Philadelphia and other markets that you've entered. Thinking about it both from the bank competition and the non-bank competition, how are you going to measure your success in that market?

Yes, that's a really good question. I would say that, first, we're extremely excited about it. We think we have a unique and differentiated brand and a unique and differentiated product lineup that will play very well in the New York Metro. We're excited about it. And you mentioned we go toe to toe with non-banks as well as the trillionaire-club banks in our other geographies. We understand what it takes to succeed. And so we're anxious to get going to prove that. I think that one of the best ways to measure that success will be branch productivity and how that interacts with -- and there'll be a big digital push as well, but we are acquiring branches. We do believe that the death of the branch is greatly exaggerated for driving primacy, at least now, branches still are a big contributor to being able to have primary customer relationships. And so we are acquiring a number of branches with HSBC and ISBC. It would have taken years and years and years, very costly to close that gaping hole, really, in our physical distributions. We're really excited about it. And I think the way we would measure it is if is converging, the branches we're acquiring, converging the productivity of those branches to the level of productivity that we see in the rest of the Northeast and in the Mid-Atlantic with the rest of our dense foot -- branch footprint. And this is not going to happen in 1 quarter or 2. This takes -- this will take 1 year or 2. Maybe 1 year or 2 down the line, we'll be monitoring it all along the way, but we'll probably stop and pause and say, "Okay, have we really gotten there and what do we need to do to close any gaps that may remain." But we're excited about all of that. And then more broadly, what HSBC brings is a little bit of a ready-made sort of experiment or piloting, if you will, and a light -- we have the dense-branch approach that we have in the Northeast and Mid-Atlantic, but we've got Washington D.C. and South Florida that comes with HSBC as well. And we had already entered South Florida de novo. And so that will just add to it. But I mean, I think, having a digital light branch footprint in 2 very attractive geographies is something that we're also getting with HSBC, and that's going to be part of the journey over the next year or 2 to see how well that goes and whether we take that to other geographies, using that playbook. And then I already mentioned, the third leg of the stool is the digital -- national digital bank and Citizens Access. So you think about our distribution, we have significant excitement in the dense part of our distribution. We have some interesting optionality in D.C. and South Florida and whether we take that into other geographies. And then the national digital bank, where we'll be looking to create relationships in a bundled way with our unique consumer lending businesses across the U.S.

So I have to ask this next question, and I almost don't even want to ask it because I feel like there's a lot on your plate to do with the acquisitions that you've made this year as well as building out Citizens Access. But what is the appetite for more bank consolidation and the bolt-on of fee-based opportunities?

Yes. I mean, I would put that in the context, first and foremost, in terms of capital allocation. We think about organic. And before I jump into that, maybe I should answer the other part of your question. I mean, our organic innovation and investment is as active as it's ever been. All of the HSBC and other fee-based acquisitions that we've done are -- we've got that well under -- in hand and well under control, we haven't even closed on investors yet. So we have a very active and robust investment year in 2022 that given all of the efficiencies from our agile delivery model and the next-gen tech approach that we've taken to our platforms, we're able to do both. And we've got them both lined up and planned for. So feeling good about that. As it relates to acquisitions, capital is, first and foremost, support the dividend, deploy RWA at returns that exceed cost of capital, and fee-based acquisitions are still in the mix. I mean, first and foremost, we're not at scale in wealth. And that's -- we've been financially disciplined. We have had many opportunities to get to scale and -- or to add to that platform. And we've been disciplined on pricing, and we want to do it in a way that's reflective of the earnbacks and metrics that are important to us, when we do deals. So fee-based acquisitions are still in the mix. Banks, maybe not as much. I mean, I think we've got HSBC, and ISBC is the primary goal for us. And when and if we have those well in hand, similar to the ones that we've already done. We're not saying it's out of the question, but it's certainly a lower priority at the moment while we've got ISBC and HSBC right in front of us.

Okay. So since we're in the capital zone, I'm going to jump ahead here a little bit. Your CET1 was 9.9% at year-end. Your glide path is expected to keep you in the 9.75% to 10% range for now. And so that's ample access above your existing minimum. And we talked about the priorities. I guess the big question mark for you is, what happens in CCAR this year, right? You sat out last year, you've not fared as well as your peers, shall we say, in terms of the SCB, I think at 3.4%...

That's right. Yes.

In the 2020 process. So how do you feel now entering the 2022 cycle, considering kind of that prior performance, considering the acquisitions, the pain points?

Yes. Yes, good questions. I mean, I think -- broadly, I mean, the SCB -- given where we are at 9.9%, the SCB means we need to carry 7.9%. So it doesn't really it's not frictional, in terms of how we allocate capital, given the fact that we're going to be holding capital well above the SCB minimum. That said, we do care about and interact with the Fed because we believe that the 3.4% is overstated. And we -- the driver of it for us was -- as some of you may know, that the driver for us is the fact that the PPNR model for the Fed consumes 2010 as a stressful year for PPNR. And it was stressful for us, maybe not most banks, but it was stressful for us as a subsidiary of RBS, who was shrinking their balance sheet at the time and asking us to shrink ours. And so we had to shrink our balance sheet from, call it, around $170 billion down to around $125 billion or so. And you know what diseconomies of scale can come, when you shrink like that. The expense base doesn't shrink proportionate with the revenues coming out, and PPNR was under a significant amount of pressure at Citizens, the subsidiary of RBS, in 2010 and '11. Those years are driving the Fed's forecast of our PPNR in stress. And it just seems -- and we've communicated with them that it doesn't seem predictive. So okay, we -- that's behind us. Every year that goes by, those years become -- have a smaller contribution to the Fed's model and based on the way they [ grow ]. So we've had 2 -- another 2 years of solid PPNR since the last time we participated in CCAR. Also, the second half of the modeling change for PPNR, the Fed actually made a modeling change, the first half of which came in 2020 CCAR, which we benefited from, net-net, where there's a weighting to more recent periods, which we very much support. So 2 phenomenon happening. Two additional good years, adding into the data set, offsetting the earlier years and the second half of the model since we weren't in last year, it went in last year, the second half, for anyone who participated, but we didn't. So we'll see that tailwind on the model change and our PPNR performance come in, in 2022, we believe. On the credit side, we've always been median or better, in terms of credit performance. And so net-net, we feel relatively good about participating in this year's CCAR. The acquisitions are all excluded, and they won't come in until 2024. If we continue our practice of going every 2 years, the next time we go in will be 2024 CCAR. And that's when the acquisitions will then come in. So a lot of time for things to normalize between now and then. So feeling okay. And I think that the other thing to add is that we -- our capital targets are probably at the high end of peers. We don't believe that we need to hold more capital than peers. Our business model is that we've been building over time to diversify and solidify our capital formation sources, we believe, are beginning to mature. And so as part of every CCAR cycle, we revisit our capital targets, our capital action, trajectory. We mentioned on the call that we would be revisiting the dividend policy later this year. So we're looking for an opportunity to potentially raise our dividend in the second half. So a lot of -- I think we feel reasonably good going into this year's CCAR to sort of clear the decks and reset the capital priorities, going forward.

That's a good place to be, and it serves up a last question, which is, when you think about your aspiration of being a high-performing bank, and you've got a medium-term ROTE target of 14% to 16%, you expect to be in that range at the end of this year, on a core basis. And obviously, the support of higher interest rates would help as well. I'm just curious, 14% to 16%, is that a medium-term target? Is that really when we think about now taking a step back and how much needs to be invested in a bank in any given year to generate growth in a really competitive environment? Is that probably the long-term goal as well, not to ask you to reset your financial targets, but what is a reasonable return for this franchise over a longer-term time period?

Yes. I mean, I think the -- we -- I think we set a target of 13% to 15% and then we upped it. I mean you'll see us, I mean, as we get confident not just reaching the target but holding on to it. And over a period of time, you'll see us consider whether raising it makes sense, when we consider the environment that we're in and the opportunities that we have to generate further returns. I don't -- I would not say that 14% to 16% is the end of our -- is the end state for this bank. But we don't reset our targets until we achieve them. So let...

I think that's a completely fair way to operate in this industry, in particular.

Great.

So let's leave it there instead of me getting you into trouble with the recent financial targets. Thank you all for joining us. Thank you for being back in Florida with us, in person. It's wonderful to see you and sit down with you here. Thank you.

Yes. Love it down here. Appreciate it. Thanks a lot. Good seeing you.