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

Okay. Thanks again for joining us here. I do have a disclosure statement to read. For important disclosures, please see Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representatives. Today, we're delighted to have with us John Woods, CFO of Citizens Financial Group; and Brendan Coughlin, Head of Consumer Banking. We're going to start with a couple of slides, john's going to go through and Brendan's going to go through. So I'll just turn it over to them, and then we'll get into the Q&A. Thanks.

Thanks, Betsy. Really great to be here, and good morning, everyone. It's a great opportunity to be in person. It's still getting used to that, and it's really makes such a big difference. So I'm very happy to be here. I'll take a few slides, I'll cover some top of house updates on various trends playing out in the quarter and the year. Then I'll turn it over to Brendan, who will cover the ongoing impacts of what is a truly unique transformation in the Consumer Bank. So let's just dive on in here. If I can get the slides going, forward-looking statements, legal disclaimers. There we go. So I mean just very strong franchise that we've been building since the IPO, and it's basically been a transformation. We've developed a full product lineup over the -- over that 7-year period since 2015 when we completed our IPO, and we have very attractive customer segments that we're focused on. We're building a digital-first Consumer Bank. You're going to hear from Brendan later on that. And the Commercial bank is -- has a full product set now. I mean it's just been breathtaking the build of that segment of our operations, delivering real true advisory solutions to our customers in that business. And then in both Consumer and Commercial, we have the investors and HSBC deals offering excellent synergies as we enter the New York City Metro. Finally, at the top of the house, we've embarked upon a multiyear next-gen technology sort of journey, which I'll cover a little later. So -- this slide helps organize the rest of my slides. It's basically some of the topics that I'll cover. And the first one is NII. NII, of course, is benefiting from the rate environment but also it's benefiting from loan growth. And our objective here is to capture both accelerating loan growth and stabilizing the NIM by capturing this rate environment and underpinning all of it is an improved deposit franchise. The second bullet on the slide is about fees. We've been delivering solid fee performance. I think the themes and the takeaway here are -- is basically resilience and diversification. So I'll cover that in a little bit more -- in more detail later. It's been a hallmark of who we are to attempt to deliver a very disciplined expense outcome. And TOP 7 is making progress and getting to the levels that we expect to hit of $100 million of run rate by the end of the year. And credit is in excellent shape in both retail and commercial. So diving into NII a little further. So broadly, loan growth is coming in better than expected. We did expect to grow, but it's coming in a little better than that. And it's really being driven by Commercial. We've been -- 2021 was more of a retail story. But as you hear in early '22 and in particular, in the second quarter, it's really a Commercial story. And within Commercial, it's about line utilization. There's momentum growing there. And we've got some pictures on the left here to highlight it. You can see in the fourth quarter, we were around 33% of utilization. Then you get to the first quarter, and it's up to 35.8%, rounding to about 36%. Second quarter, that trajectory will continue. And the same can be said of Corporate Banking and Corporate Finance, which are the 2 big drivers of Commercial overall. Within -- if you go another layer, what's driving increase in utilization on the Corporate Banking side, it's primarily inventories. So you've got inflation pressures there, but there's also some prepositioning of inventories and supply -- given supply chains that's causing that utilization in corporate banking. In Corporate Finance, however, a lot of that's more acquisition-related, but again, driving in the same direction. And as we -- but we're being more selective in consumer, and there's a rotation there going on. Nevertheless, there's some very attractive risk-adjusted return opportunities in Consumer when you look at home equity and the in-school part of education. If I move over to net interest margin, the other part I talked about loan growth, but then the other part of NII is NIM. And really, as we've mentioned previously, there's a much higher quality deposit mix this rate cycle as we head into it. And so the visual on the page here is articulating the fact that when you look at the beginning of the last rate tightening cycle in the third quarter of 2015, less than half of our deposits were in our lower beta categories. As we head into this cycle, we're now a majority of our deposits are in lower beta categories. And both Consumer and Commercial are contributing to this, but really Consumer is the bigger driver, right? It's -- there's been a transformation of the product set, how we go to market and all of that is leading to primacy and lower costs. So you can see our interest-bearing deposit costs falling at the beginning of the last cycle around 34 basis points from the beginning of this cycle down to 10 to 13 basis points. And what's the impact on that is that 4Q is where NIM basically bottomed out. We had NIM increase, a healthy increase in first quarter. And that NIM will -- there's an accelerating increase in NIM that you can expect in the second quarter and as we go into the rest of the year. So a couple of other comments about NIM. What's driving all of this is how we're managing interest rate risk. NII is continuing to benefit given further rate increases since April. We've continued to lock in the benefits of higher rates and protect the downside. And what we have here is a table illustrating what we've done in the quarter to date. So overall, we've executed $7.25 billion in cash flow received fixed swaps. The average rate on that is 2.8% and it breaks down into about -- sort of a $4.25 billion in spot and $3 billion in forward starting swaps. And then the other aspect of how we're managing rates is also the securities portfolio. So we're rebalancing the securities portfolio as well to stabilize its contribution to NII but also trying to mitigate the impact of tangible book value to rising rates. And so a couple of key takeaways here. First, the securities yield is expected to rise by about 35 basis points in the quarter given the difference between reinvestment yields and the growth that we're having there. Second, we are increasing the allocation to treasuries so that, that would -- and other lower prepayment propensity security so that it's sort of dampens the volatility in that portfolio as we do that. And then lastly, as I may have mentioned or you may recall that we did increase our HDM designation in the securities portfolio to 23% in the quarter-to-date from only 7% in the first quarter. So that would have an impact on mitigating AOCI. Flipping over to out of NII into fees. So again, I guess the theme I want to get across here is diversification and resilience. So we're having -- we're delivering solid fee performance. There's been multiyear investments here, both organically and inorganically. I think if you think about the Consumer side, the big drivers are mortgage and wealth. Mortgage is a scale business. It was a huge contributor in 2020 and 2021. There are some -- we are contending with the environment here with lower volumes and pressure on margins. But 2Q is basically a stabilizing quarter versus 1Q. And -- so we think that, that -- we've seen, hopefully, most of what the negative impacts will be in mortgage here in the second quarter as it stabilizes. Wealth is gaining momentum. We do want to build scale there, and there's some great organic investments playing out. Capital Markets is a very big business for us now. It's fully built out. We've gained a lot of share, completely transformed since the IPO. And if you look on the lower left part of the slide, we try to illustrate, the product lineup in 2015 and then we're comparing that to the product line up to '22 and just a significant difference. And you look at the bottom part of that column of 2022, all of the new products added or enhanced. So M&A advisory, debt capital markets, yes, equity capital markets, et cetera. And what I'd like to show is on the lower right. Back in 2019, you can see the growth from 2019 is about 30% to 35% as you jump forward to 2021. So we're growing capital markets overall, but also it's diversifying. So there were 3 big drivers of our 2019 performance. But now when you look in 2021, it's much more balanced across 5 broad categories. So that's really the main message in capital markets. And then again, the last point, again, with respect to diversification, we built out our FX into derivative products businesses. That's benefiting from lots of client activity here with the volatility in early 2022, and that is a diversifier and a place where we'll tend to see some growth in 2022. Flipping over to expenses. As I mentioned, TOP is a hallmark of who we are as a company, and we're in the midst of TOP 7. It's progressing nicely. The big drivers of TOP 7 are in the upper right on Page 9, the first 4 bullets are more traditional. The last couple of bullets, I want to comment on a little further. Cloud migration, an agile delivery transformation of the company which is underway and I'll comment that -- on that on the next page. So when you look at really next-gen technology and agile ways of working are huge drivers of how we're going to be efficient in the -- on our platform going forward. But not only that, it's a massive foundation for innovation and a true driver of our strategic initiatives. It's multifaceted. When you think about what we're trying to accomplish, we're transforming our talent complex. We've launched a robust set of tech academies, where we've hired 550 engineers since 2019. We are embarking upon an agile operating model where we've converted the entire company from waterfall delivery to agile. So we have 2,800 colleagues now in 285 pods, that drive delivery from a customer perspective. And the -- our objective there is to reduce our delivery time frame from greater than 270 days down to less than 3 months. We've got an API-enabled platform. We're looking for a 20% increase in that, adoption by early '23. One of my -- one of the more exciting things here is the tech cost structure transformation where our objective here is to migrate all of our applications to the cloud and exit all of our data centers by 2025. That will be a huge step change in cost that will be available for us to invest back in the businesses as we see fit. And then lastly, from a risk perspective, we are protecting the core and 80% decline in significant incidents as a result of our investments in this space. Last section I'll cover is on credit. So credit portfolio quality is -- it continues to improve. When you look at the retail side of the house, it's a super prime, prime-focused business. We've got the secured businesses with very strong LTVs, education and unsecured with very high FICOs. And you look on the right side of the page, you see the huge increase in investment grade. Portfolio risk ratings from -- before the pandemic until today, lots of -- there's a disciplined capital allocation approach. And I should also mention that from a leverage lending perspective, it's less than 2% of our portfolio with granular hold positions. Some of the leading indicators of credit are very favorable. Criticized levels are down. ISBC portfolio credit is actually very favorable. And we're feeling good about that. We're not seeing any stress in drawdown activity. So it's not -- we're not seeing any defensive draws. It's all about inventory building or acquisition finance. And on the retail side, personal disposable income remains healthy. A number of solid signals coming from card activity in terms of utilization and payment rates. So that's very good to see. And then lastly, our credit performance itself is either better or in line with peer averages. So our NPL levels are right around or below peers. Our classified levels are below peers. And I think the Fed's DFAST results -- the last time we were run through the full DFAST in 2020, our results were also in line with peer average. So to sum up, our diversified business model is positioned to perform well in a very volatile world that we're in. Revenue outlook is strong. Expenses are well controlled and credit trends look quite good. And with that, that will do it for me, and I'll turn it over to Brendan.

Good morning, everybody. The page here. So it's no secret, coming off of COVID, the digital acceleration that happened in consumer and retail is driving a business model change across Consumer Banking. Any time you look at an accelerated transformation like that, it's really important to understand the foundation that you're building from. I'd tell you, Citizens Bank of today doesn't look anything like Citizens Bank of 2015. You can see a little bit of the from and to here. When we went public, we were a very unhealthy deposit franchise, promotional money. Now it's completely transformed. I'll hit on that in a couple of slides. Our lending capabilities were very basic and now I would put us up against any bank in the U.S. in terms of the most diversified and well-run consumer lending franchise in the U.S., including on the credit line, which I'll also hit on today. We were a traditional retail bank when we went public. And now we very much are a national bank, 20% of revenues come from out of our footprint, and that's growing rapidly. Our households are almost double, so we're getting scale in customers. And a wealth business, while it's got a lot to do is approximately triple what it was when we went public in terms of AUM. So dramatic transformation in the Consumer Bank, which gives me confidence that as we grow, we've got a solid foundation. Increasingly, scale matters a lot in Consumer Banking and banking in general. But particularly in Consumer Banking, the digital-first world needs to be led by investments in technology and brand investments in marketing. And to get that, you really need scale. And I would tell you that Citizens is in the category the haves versus the have-nots. And you can see us winning on all these dimensions. Our customers are approximately double over the last handful of years. Our checking customers are growing. Loan growth is up materially, deposits are up materially, AUMs up transformationally and the mortgage business has significant scale. So that's a great foundation to build from, and you can get the proverbial snowball downhill, you build scale, you get leverage, drives operating leverage allows you to reinvest in marketing, drives more revenue. So that's the path that we've been on. We've got a demonstrated track record of delivering scale growth and we don't expect that to slow materially. A lot of action right now on deposit betas. I want to give you a little bit of a deeper dive into what gives me confidence that the Consumer Bank is in a dramatically different position than it was when we went to the last rate cycle. So we believe that our betas in the Consumer Bank will be 25% to 30% better than the last time we went through, which is a dramatic transmission, and I would describe us more peer-like now where we were not peer like in the last rate cycle. And what's driving that? So you can see the dimensions here. First, we have a lot more customers, both on the checking side, but the customers that we do have also remixed, 62% of mass affluent or above versus just over 50% the last time we went up. So more customers who have more wealth. Secondly, customers are dramatically more engaged, more primary, attrition is much lower. And you can see what that -- what happens when you have more engaged customers is they have their direct deposit with you, which means you're going to get more low-cost balances, which means it's going to stabilize the book and you need less promotional deposits than interest rate deposits. So when you see 75% growth on a per customer basis on low-cost deposits, that's a significant health indicator of the consumer bank. It gives me a lot of confidence, not just on deposit betas, but our ability to cross-sell going forward that we have highly engaged customers in a transformational way from where we were 7 years ago. And you can see the stat below, it's still 45% up on a per customer basis when you sweep aside the stimulus. So this isn't stimulus money driving a transformation. This is fundamentals. We've transformed the bank from the outside in, and our customers are more engaged and it's giving us the confidence to drive better deposit performance. You add the capabilities that we built. With Citizens Access as a new lever, a dramatically different product suite and big investments in analytics, we feel really, really good that we're going to perform significantly better in this cycle than the last one and then you can see some of the metrics all the way on the right. So what does that drive in terms of a foundational starting point? Our low-cost deposit mix is up materially from below 50% to 63%. That's a huge advantage for us in the cycle. And then on the bottom, the other implication of that is the amount of balances that we had that we would describe as promotionally priced. So hot money is dramatically lower. So the portfolio looks much healthier, much more engaged customers. We're not needing to chase the highest paid interest rate in the market, and we don't need to reprice our book as much as we did the last time. So I feel really, really good about the performance that we will be in line or slightly better than peers this go around. The other hot topic has been credit. John hit on this a little bit. First of all, let me say, I don't see any signs whatsoever in the Citizens book of any stress. It is at all-time lows in terms of NCOs and delinquency. And there's really not much of anything that is moving that would give me a cause for concern. Customers still have an enormous amount of excess liquidity. As John pointed out, they're delevering in credit card. We have not seen a reinflation of that in the prime space. They're making payments in full more than ever before. And that's demonstrated through the credit metrics without any signs of stress. The other point I would want to make is on the bottom, there's been a lot of conversation around some of the places where we have got unique growth, whether it's our Citizens Pay business, whether it's our student loan business, like these businesses are super prime in profile. And when you look at them compared to credit card, prime credit card, which most folks understand, typical credit card NCO rate, called 3.5%, 3.3% prior to COVID. We're obviously managing that book lower than normal given implications of COVID. The other products are multiples below prime credit card. So they do not look and feel anything like a near-prime business. In fact, they demonstrate more super prime qualities than our prime book. And I've got a lot of confidence that, that will continue. And I'd just remind folks that we didn't get into these businesses in the last couple of quarters. You can kind of see on the slide, we've been in these businesses for 7 to 10 years. And so we've got a good track record, good models, and we're driving, I think, incredibly strong performance in these portfolios. And I don't see any signs of stress whatsoever in these unsecured growth portfolio. So I thought I'd share that with you today. Look, we're also innovating. We continue to have a culture towards innovation. A product that has been forgotten for a while in the U.S. home equity lending is now back. And you think about the amount of folks that have locked themselves in at sub-3% mortgages. And given the rate environment today, yet, we have the most equity built up in the Consumer's balance sheet than ever before in the history of the U.S. So the only way to tap into that without retrading your mortgage, which nobody is going to want to do, is the home equity product. And we could not be better positioned in the market in this business. We believe we're the #1 originator in all of the United States in 2021, despite only originating in 14 states, which is -- we're very, very proud of. It's also a product that drives mass affluent customer growth that we have a 90% hit rate of cross-sell and deepening. So it's accretive to the franchise overall. And we've made massive investments in data and analytics and transformation. And we're leading the industry in terms of making the product feel a little bit more like a digital-first straight-through business versus a mortgage. So we've built a great foundation, and we're poised to pounce on the market opportunity with HELOC and you're already starting to see the signs of it. You can see our balances. While it's modest growth, the industry has been in a state of decline ever since the financial crisis, as all those old pre-financial crisis vintages have burned off, not for us. We hit the bottom, we turned around. We're one of the only banks in the U.S. that is actually demonstrating HELOC net growth. So we're really, really excited about the foundation we built and the growth prospects there. I've shared before -- we've been growing our Consumer Bank roughly at 2x peers through the IPO period. And so as we pulled up and thought about our transformation, the question is, well, what's going to drive that next leg of outperformance? And so we've teed up 5 initiatives here that we think will give us sustainable revenue growth that exceeds our peers. And I won't go through every last piece here, you can read them, but one of them, John mentioned our acquisitions in New York City, New Jersey. That is going exceedingly well. The New York City branches from HSBC are our highest-performing sales branches in the entire network, and we haven't really even turned on marketing yet. So we're very pleased, it's early innings, but we're very pleased with what we're seeing there, both in deposit growth, stabilization and customer growth, and we think we've got a real chance to win. We've got good momentum in wealth. Obviously, the backdrop with volatility in the equity markets has been challenging. We've made some major investments, hired a brand-new leadership team. We're on the hunt for acquisitions, but we're going to be a disciplined buyer, but I've got confidence that we're on a path to really grow that business significantly organically. We've got our national bank strategy. It's going quite well. We just launched in beta, a new mobile app. We're bringing together our capabilities. I'll tell you a lot of discussion on what gives you the right to win nationally, we already are winning nationally. We're winning nationally point-to-point in all these other products. So our national banking strategy is about bringing that all together in the strength of an integrated franchise. And that's what you'll see from us over the next couple of quarters. Citizens Pay has been modestly growing, probably a little slower than we wanted, and that's okay. There's a lot of concern regulatory wise. We're very disciplined in this market. 50% or so of the market, we don't want to participate in paying for really small ticket financing. We're mid-ticket financing. We're going to stay very disciplined to make sure we get the right returns. I'm confident that we'll be able to grow that long term. And then our digitization agenda is going quite well. This is my last slide here, which I won't go through, you can see all the stats. But what I'd tell you is, our digital transformation is well underway. Our capabilities are strong. Our customers are engaging digitally. It's allowing me the opportunity to really reframe our physical channels. We're very committed to physical channels for advice. So we've got both of those transformations going in parallel. And then underneath, we do have a technology transformation underway specific to the Consumer Bank. So we're one of the first banks in the U.S. to be on a cloud-based modernized core. We launched that with Citizens Access. That will, at some point, over the next handful of years, come into the regional bank, which will unlock a significant acceleration of technology transformation over the medium term. So anyway, in summary, we've got a very strong foundation, broad growth aspirations. We're winning in scale, and the transformation that we've done so far should give us confidence around the performance of credit and deposits, in particular into the cycle. So I'll pause there, and we can go into Q&A.

Okay. So a lot of my questions were answered in your slides.

Okay, good. We're on the same page.

Brendan, maybe you could help us just understand a little bit more how the deals by SBC and HSBC are going to -- how much growth it's going to drive for you as you look out? What kind of uptick and rev growth should we expect as you deliver on that?

Yes. It's obviously early innings, but I would remind folks that we didn't really build any revenue growth into our deal models. And so any growth that we do get is gravy on top of what we've communicated in terms of how the economics of those deals work. But we're expecting roughly 2x growth rate in New York City and New Jersey that we would see in our more mature core markets. And what's driving that is -- or driving that confidence is, the diversification of our business model is significantly better than both what HSBC offered their customers as well as investors. And so -- and we're already seeing signs of that. We've had a really strong start on HELOC. We're hiring at scale on mortgage and wealth advisers in the market. And we're seeing deposit stabilization on the back book and signs of growth with household acquisition. So over -- we've communicated in past conferences that the summation of all those 5 initiatives should ultimately drive a run rate of about $1 billion in incremental revenue over time. We haven't sort of compartmentalize them out. I would say those markets would -- you could expect it to be growing about twice as fast as the rest of the bank.

And that's enough growth to offset the flow deals that you're feeding. Is that fair?

Yes. Look, I think John mentioned this as well. As we're managing the balance sheet at the top of the house given the commercial bank is coming on strong, it provided a good opportunity to refocus our capital allocation to a real deep relationship base customers. So there was a time in place for those fintech partnerships as we were levering the bank up and growing and driving operating leverage allowed us to invest in technology and brand when we were really trying to build scale in the bank. And now we've sort of arrived. We've got scale. We've got a lot more levers ourselves. And so we've got confidence we can do it on our own.

Got it. All right. Thanks. John, question for you. question of the day, how is the quarter shaping up?

Yes. Well, in a word, I'd say the very positive trends in PPNR and revenue overall. I mean within revenue, we're seeing, as I mentioned, better-than-expected loan growth, some acceleration in NIM. And that's really offsetting, I would say, some headwinds on the fee side, where we're growing a little bit less than expected. But as I mentioned, the diversification and resilience in -- across all of our fee sources within capital markets, within FX and derivatives, which is actually offsetting and some stabilization in mortgage. I mean the revenue picture is very positive. Expenses, well controlled, and credit has really never been better. And so we're feeling pretty good and bullish about the quarter.

So when you say mortgage stabilization, does that mean Q-on-Q stabilization?

Yes.

Okay. So that's very different from what we heard from Wells Fargo earlier today.

Yes. I mean, in our business, we do have some pressures in production, which I think a lot of us are seeing, both in terms of volumes and margins are under pressure, but that's being -- we have a diversified business across 3 channels. We have wholesale channel and correspondent as well as retail in production. So that's providing some diversification. And our servicing business has been growing. So you're seeing servicing fees grow and a reduction in runoff and amortization. So that's helping to underpin our mortgage outlook for 2Q.

And I know you talked a bit about the actions that you're taking around reducing the impact of the securities, the rate environment on AOCI. Can you give us a sense as to what we should be anticipating for 2Q?

Yes. It's couple of weeks ago, it was pretty clear what was going to happen, and that would have been a lower impact. A combination of the rate environment, maybe not advancing as much as you saw in 1Q and combined with effect that our HTM portfolio is now more than double what it was in the first quarter. So it provides some book value protection. But as you -- I'd say I book ended, I'd say that late May, early June rate environment, the impact would be a lot lower, maybe half. The environment in the last couple of days, it would start to approach a similar impact to 1Q, but we'll see how the rate environment plays out. I mean more broadly, it's an optic because in the end, it's not an actual impact to capital, but we tend to keep track of it.

Right. Just to close that up. On capital, you're managing to the CET1, right?

Yes. Correct.

So you don't -- whatever TCE to TA is, you don't care?

No, we keep track of it. But I mean when you look at your marketing securities, but you're not marketing the right side of the balance sheet, it's a little bit of an accounting focus that's important in the context of if it were to flow through to capital, but it's not. So we nevertheless keep track of it. But overall, our rate positioning is such that we benefit when rates rise, notwithstanding the mark on the securities portfolio, we actually benefit with the rate rises that have happened and will continue to happen if they do tomorrow or with the Fed. And this is something that we actually benefit from even though there's that mark on the securities that gets a lot of attention.

You're very asset sensitive.

We are asset sensitive. Yes. I mean I think we took some actions this quarter, as I mentioned on my slide. So asset sensitivity is falling. But that's due in not just by our management actions. But as NII rises, that baseline creates a reduction in your asset sensitivity. So it's actually as asset sensitivity falls, NII rises and that's a good thing.

Just on the acquisitions, can you remind us how much positive operating leverage they are expected to deliver over the course of the next 1, 2 years? And also given how the rate environment has changed, how would that impact what you think they're going to be able to deliver for you?

Yes. I mean I think this is a multiyear investment that we're making in the bank deals. And if you're talking about HSBC, ISBC, yes. I mean, I think those businesses are -- it's -- they're going -- they're immediately accretive and they are going to drive operating leverage. Earn-backs are quite good. And the HSBC, we've already closed and converted and we're seeing phenomenal uptake, as you heard from Brendan. We're going to start integrating on a phased basis, investors throughout 2022. And our big convert of the core will happen in early '23. And that's when really the momentum will begin when we can really drive our product set into the customer base at investors. And so I think you'll see a lot of that positive operating leverage coming online in '23 and '24 on investors.

Okay. Just pause to see if there's any questions in the room. One up here. Yes. You're getting a mic. Here come.

With the HELOC product, can you discuss what type of customers you're offering it to? I'm really interested if it's your own customers or new customers, other bank's customers?

Yes. It's both. And so about 70% of the originations are to existing customers, 30% or so to new to bank. And of the new to bank, we get a 90% plus convert rate on deepening, right at point of sale, typically checking and savings and maybe credit cards. So it's very much a relationship product eventually and quickly, but we do use it to acquire new customers as much as we do to deep. And I also say the profile of the customer is incredibly strong. And so we have an outsized mix first lien. About 50% to 55% of the business is first lien. That's very unique and different than the market. Also, the average credit is about 780 and the CLTV hovers around 60. So it's super prime, all day long, generally mass affluent, affluent customers that then bring the rest of their wallet to us. You almost can't picture a more perfect scenario long term for the health of the integrated Consumer Bank than what we've been able to accomplish with HELOC. So we're very bullish. Obviously, there's been some competitors in and out of the market, some coming back in now. We don't expect everybody to be on the sidelines forever, but we're going to continue to push on the business.

And are you also doing home equity loans as well?

So we don't do home equity loans. Years ago, we did and moved it into the mortgage business, and it was really a product that given the complexity of underwriting a mortgage loan, the value prop just wasn't there. So all of our home equity originations are variable rate on a line of credit for now.

Okay. And what's the max LTV you would go?

Our max LTV is 90%.

90%. Okay, great.

And it's got all kinds of mitigating underwriting criteria when you get over 80% to make sure it doesn't have any layered risk.

Sure. Got it. All right. Well, we're in the last minute we have here -- the question I have is just on what you think the market is missing. You're one of the cheapest stocks we cover, you're very asset sensitive, credit looks great. So what do you think the market is not?

Yes. I mean I think we are -- our valuation is attractive on both a relative and absolute basis. I think we are a relatively young bank when you think about the fact that our IPO was completed in 2015, we're about 7 years in. We've done a lot of building over that 7-year period in terms of our product set in both commercial and consumer. We've really -- if you think about the last 3 years, it's been a breathtaking amount of growth. Our profitability has lagged over that time frame, but we're converging quickly. And I think that we're anxious to be able to demonstrate that we're going to deliver on our medium-term profitability goals, which we mentioned we would get to at the end of -- in the second half of '22 and being anxious to demonstrate our resilience in times of stress from both a generation of capital perspective and earnings and from a preservation of capital standpoint on credit. And we believe our credit is peer-like and we're getting to peer like profitability. So we're -- we'll just keep grinding away that profitability and managing the bank in a prudent way, and the valuation will come.

Great. Thank you so much for joining us this morning. Thank you, John. Thank you, Brendan.

Thanks a lot.