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

All right, everybody. Hello again to all of you in the room and on the webcast. So continuing on a very upbeat morning for banks, we have with us Citizens Financial Group. And with us, we have Don McCree. You all know him as the Chair of Commercial Banking; and Ted Swimmer, our new Head of Commercial Banking. Welcome, you guys.

Thanks.

Thank you.

So we usually kick off these firesides with a macro-related question. But I think your breadth and depth of the commercial bank is still a little bit underrated by investors, I do want to start there. So Ted, as I alluded to, you're transitioning into some pretty big shoes to fill right over there as you take over the business. And for those in the audience who haven't had a chance to meet you, could you give us a sense of how you and Don have evolved the business since the IPO and how more national the scope is of your middle market-focused banking business? I do want you to touch on the private equity and capital specialty that you built out and how your acquisitions of boutique M&A firms really rounded out your offering? I know it's a lot, no pressure.

So let's start with -- I think under Don's leadership, we've built the best commercial bank in the super regional set. We have spent the last really 10 years since Don's been here, building out our products, building out our relationships and building out industry verticals that make us a dominant force in the super regional market set. We started originally as basically just 10 years ago, 11 years ago around the time of the IPO, we basically had the ability to lend and to take in deposits and really didn't have an ability to transition with our customers. Since that time, we've built out -- we started with leveraged finance, building out leveraged finance, being able to do syndications, do bonds, things of that nature in the leveraged area and then follow that up with bringing on more and more industry talent in sectors and then had a series of M&A acquisitions buying boutiques that have made us in certain industries, the leading force in whether it be gaming, whether it be digital infrastructure, things of that nature, we've built that out. We have also continued to really focus on building out our client relationships. So we used to be really a middle market bank focused in Mid-Atlantic, focused in New England and the Midwest. Over the last 11, 12 years, what we have done is we have hired a number of bankers to cover larger customers, and we've recently changed that from being more geographically focused to being more industry focused. We have taken our franchise in the middle market and have expanded now into Florida, California and New York City. We were resistant to do that for a fair amount of time because we never wanted to be just a middle market bank, which didn't have a retail presence or a different reason to be than just the middle market. We've always found that if we were in a region where we didn't have other things that go with it, you inherently wind up doing the more difficult deals, you do it at the lowest prices to try to gain market share. But since we bought, we started to take on all the First Republic bankers in California and Florida, we had a reason to exist in these places, and we've been able to build out those areas very well. And in New York City, with the investors and the HSBC branch acquisitions, we've built out a fair -- a really good coverage effort in the middle market in New York City also. So we've been able to build all of that out, expand our geographies in the middle market. I think we were one of the earlier regional banks to accept the private capital universe as something that's growing. And starting in really 2014, 2015, we started to invest a lot of time and resources into the private equity universe, starting with just doing the natural LBOs and things of that nature and now have been involved after our acquisition of JMP in 2021' be able to cover them from an equity perspective. We've linked our subscription line businesses, our lending to the direct lending funds, investing in the BDCs. And now we're doing the equity, the bonds and financing the private capital community, which has been a very good area of growth, and it's still a large area of growth for us into the future. We take all of that and we combine it with what we have spent a lot of time and effort doing, which is investing in our treasury solution set. So every middle market company we bank, we push very hard on getting their treasury solutions business. That has -- we've been doing that at a really good clip and continue to build out. We've been able to get to the merchant services business with the nonbank merchant services. We're, I think, the dominant bank in doing that. And we continue now to figure out how to embed our treasury solutions into the private capital community. So it's all kind of working well. And since we bought the -- or since we inherited the Private Bank or invested into the Private Bank, we have taken on this mantra of One Citizens, which means with every middle market company, every M&A transaction we do, we're introducing our private bankers in private wealth to make sure we're getting the other ancillary business and in reverse there and introducing us to a number of customers we never had access to. So all in all, it's working very well. The flywheel is working. We've been very successful on buying a series of M&A boutiques, whether it be DH Capital, Trinity, Western Reserve, Boostring. They've been very -- we've had a great growth and industry dominance because of them. And then JMP has introduced us to the equity market and biotech and health care. So I think we're in a really, really good position to take advantage of what we see as a very positive market over the next couple of years.

So what do you think are the big factors that will hit in 2026? But also looking forward, what are the sort of the 3- to 5-year accomplishments that you want to check off?

So most importantly, I have inherited a wonderful business through Don. And what we really want to do is step on the accelerator now. We've done all this in the last -- really since the end of 2021, we've been in a kind of sluggish to weak overall banking environment. There's been very little in the way of M&A. There's been very little new funding from banks to provide. We are starting to see a series of signs out there that will indicate that we are now on a much better trajectory than we thought -- that we've been on in the past 3 years. So we're going to continue to invest into our industry specialties. We're going to continue to make sure that we are -- have the best corporate finance M&A bankers in the industries we choose to cover. We're going to continue to expand into Florida and California into New York, make sure we have a very good product offering in those areas. We're going to spend time on further deepening our product set. So we've -- we feel very good about what we're doing on the loan side. I think we're going to continue to spend more time investing in the bond side of our business, continuing to build out private equity coverage as that market continues to be stronger. And then a couple of other things. We are going to be investing more into our treasury solutions product set. Although I think we've done a really good job over the last 10 years, there are so many different areas you can invest in that business, add customers that we had never seen before. We are -- we've also spent -- and I should have said this earlier, we spent a fair amount of time reenvisioning our balance sheet. So we have continue to pivot away from our less profitable opportunities and put more money into where we can make higher returns. We had called it balance sheet optimization in the last 2 years. I think it's now more BA use business where we're going to continue to exit customers that are -- no fault of theirs or no fault of ours, we're not achieving the revenues that we'd like to achieve. but we're going to redeploy that capital into areas where we think we can have much better growth based on our industry expertise now. And finally, as a bank, we're going to continue to leverage our AI expertise. We've been very public talking about reimagining the bank and how we think there's a lot of opportunity and a lot of cost saves by continuing to invest and leverage AI and also leverage all the processes that we've developed and simplify them. And we're going to continue to use that and focus on that in the commercial bank.

So lots to unpack there. Perhaps let's start with the private markets, which has been a big theme in general and over the past 1.5 days at this conference. So sponsors are sitting on both levels of elevated value and dry powder. So maybe question number one, where are we on the timing versus valuation sort of discussion with the sponsors?

So I would say, as last year kicked off, we felt really good about 2025 being the year, and then we all had Liberation Day, which had -- although Liberation Day and that whole trauma around that was probably 6 to 7 weeks, the impact of that went for far longer because companies, as they were getting ready to sell, there still wasn't clarity on tariffs. There wasn't clarity on what their projections were going to be, which made companies more uncomfortable about putting their companies up to sale at this point. I think we've -- as we enter '26, we feel much better. We still -- there's always volatility in our markets, but we feel much better that companies and buyers and sellers have more consistency around where they think their earnings are going. And as such, we think that we will -- I know -- I mean our pipelines are showing and I think all the banks pipeline are showing a number of companies who are putting their -- want to now private equity and middle market companies who are ready to put their companies up to sale. The valuation -- for top companies, for A, A- companies, the valuations have been -- we've been able to find buyers or sellers where it got more difficult was on the second level down where there was a -- the seller was like, no, this company is worth so much more, just wait and the buyer was like, well, I'll wait till see. So we had trouble transacting. I feel like that bid-ask spread is narrowing relatively significantly, and we will start seeing those transactions occur in '26. We have to keep in mind that these processes are kicking off now. So although I think this will be a very, very good year. I don't know that it will be the best start-off point. But I think with the pipelines we're all seeing, we feel really good about what the year is going to look like by the end of it.

So Ted, you elegantly took us through the evolution of Citizens from financing LBOs to being a more complete partner. So maybe as we think about the potential monetization of these investments, how will Citizens benefit, whether it's through a continuation vehicle, a merger like you mentioned or an IPO?

So with private capital, with private equity, we have -- we look at these relationships as holistic relationships. We have moved from covering these customers on a product-by-product basis -- and we now -- we're trying to mirror what the private equity -- the private capital firms do with us. They look at us as one bank servicing them. We're trying to look at them as one fund and how do we best service that one fund. So we have -- from the simple part of financing and trying to do the sponsor's LBOs, we also layer that with doing subscription line business. We're providing that capital will provide an ability for the sponsor to leverage their returns a little bit. And if that's important to them, we'll provide private capital. We're lending to their direct lending funds, we'll provide that kind of business to them. We will continue to look at lending to BDCs, if that capital is important. So we're looking at the overall relationship from a holistic perspective. And we think by doing that, we're having enough this dialogue, whereas if they do a continuation vehicle and they need an underwrite on a bank deal to move from one fund to the other, we'll be able to provide that for them. We'll be able to provide the expertise on that transition. We've done it several times now in the digital infrastructure space where we can provide the expertise to a customer on transitioning. But most importantly, continuing to give the company and the financial sponsor the right advice on what to do, when the right time to sell is. And because we have all these different avenues into that financial sponsor, we can have a fair amount of seamless dialogue with them and make sure that they're getting to hear our advice, which definitely positions us to get the revenues when they do choose to transact.

And Erica, let me just amplify something on that point is one of the things we've tried to do is be completely agnostic about executions. So if you think about what we tried to build, we can distribute and underwrite into private credit, into CLOs, into BDCs, into bank markets based on what market conditions look like and what the underlying transaction kind of dictates in terms of transaction structure. And then you broaden that out and say, you can go senior debt, you can go securities, you can go private equity, you can go family offices. And it's really -- as we engage with clients, particularly in highly transactional clients. I mean if you think about our industry efforts, they're very transactional industries. So I think gaming and digital infrastructure, it's where the action is, and it's always changing in terms of where market appetite is. So we view our responsibility to our clients is kind of talk to them about the right execution as opposed to having a bond guy go in and a syndicated loan guy go in and an asset-based finance person go in, but really talk about given where market conditions are, what the calendar looks like away from us and on us, here's the best execution for what you're trying to accomplish. And I think we're pretty unique in the regional space of having all of that and being able to move execution to execution.

So just double-clicking on one way to execute, obviously, through M&A. It's just been such a bullish morning on advisory revenues. So maybe remind us about how your capital markets revenues break down and how you expect to contribute to the 6% to 8% total firm fee growth.

So building on what Don just said, we look at capital markets as an overall -- if a company chooses to go to the bank market versus going to the bond market, if a company chooses to do an M&A transaction or hold off on an M&A transaction 1 year and take a dividend another year, we look at the -- just being able to serve the customer in whatever they do. So we don't necessarily look at or I don't necessarily focus on each individual product as a whole. What I do -- what we do focus on is are we providing the right advice? Are we in front of the customer when we need to be in front of them. And what I think we both feel very good about is that by the level of activity we're seeing and the discussions we're having and the mandates we're getting signed up for, we feel good about where we see capital markets revenue go in 2026. It just feels like a very different tone in the market. We were on a transaction last week for VSE which was a great equity transaction for us, something that we would not have been able to do 4 years ago that we were able to be very much involved with this time. So as companies are looking at different things to do, whether it's going to the equity markets, going to the bank market, whether it's just, hey, we need a bigger subscription line because we want to move this from one vehicle to another. We feel like we can -- we're there, and those conversations are definitely rising in 2026.

And I think what we said on the earnings call was 6% to 8% fee growth for the company with over-indexing towards wealth and capital markets. So we would expect to do higher levels in the capital markets business.

So Don, let's sort of switch to the Private Bank and how it's contributed. Obviously, the folks that you hired have had previous experience in terms of subscription finance, very niche specific multifamily and obviously, banking and managing the wealth of the owners of these businesses. How additive have they been? And do you expect that ramp to continue?

Yes. It's been actually incredible because -- I mean, there was a little bit of consternation at the beginning because it's, oh, wow, we're going to hire these fantastic bankers from the old First Republic, and they do what we do. They do subscription lines and we do subscription lines. Once we got through about the first month, their client base is completely different than our client base. They've tended to do venture and smaller funds. We tend to do larger funds in the big complexes. So I can't remember the number, but there's probably 10 crossover clients once you cut through it. And I would say from the digestion of these teams -- and it was several hundred people. So it was a big, big set of acquisition of talent by the company. But we digested it pretty quickly, and it was probably 3 to 4 months where we really began to work together. And as Ted said, the key on these things is you start to get some wins on the board and you start to trust each other and you start to actually -- the private bankers begin to say -- and remember, First Republic didn't have a capital markets business. They really didn't have a lending business. They didn't have M&A capabilities. They didn't have equity capabilities. So they didn't have a lot of things that we can bring to bear for their clients. So it's a whole new opportunity for them to engage with their client base. And we had Clarfeld and a little bit of a wealth business and a little bit of a private banking business, but we had nothing to speak of. So the complementarity of the 2 units and then you add -- Kristin, I can't remember 5, 6, 10 wealth acquisitions that we put on top of it buying wealth companies. the ability to go to market with a full complement of capabilities is just extraordinary from a standing start 2 years ago. And as you know, we're generating good returns. We're growing faster than we thought we were going to own the private bank and the wealth business. We've got decent LDRs. All the metrics look as good or better than we thought they were going to. But I think the key is the way the teams are working together. Ted and I just got off a call this morning with a private banking client who runs -- they're on their fifth fund. We've never banked them. And they wanted to talk to us about how can we do more business with them, and they've been at First Republic or we don't use that word anymore. They were banked by the First Republic bankers for years. And it was just -- the bankers weren't even on the call. They trusted Ted and I to have that conversation, and that's happening all over the place. So I think the growth trajectories across all of these businesses are going to be quite significant. And then the question is, how quickly do we let everything grow while making sure we maintain profitability. So I think one of the things we have done well is calibrated investments with revenue generation. So we haven't gone out and gotten way ahead of us from an expense standpoint, and we've been able to bring the revenue and the returns in pretty quickly underneath. So we talk about it all the time around do we do another wealth acquisition? Do we hire 10 more capital markets bankers, but we're definitely investing across the overall platform, and I think we're just beginning to get going. I think it's going to be quite exciting.

So you built something exciting. Now is the macro exciting. So Don, you said in June that the trade movie is behind us. So do you still feel that way? And specific to U.S. middle market corporates, how are they feeling about where they are on the investment side?

Remember the football movie, any given Sunday, I feel like it's any given Monday now.

And [indiscernible] over the weekend.

Yes, exactly. So I think that a couple of -- so if I go to the real macro and you say, we got a pretty good economy. We've got a pretty good regulatory environment. We've got a pretty good trajectory on interest rates. The long end is going to stay a little bit high, but the short end is going to come down a little bit more, I think. You've got a client base, which has confidence building within it. And so when we talked about the trade, the problem was early in a lot of these announcements and you can extrapolate that into the government shutdown. The uncertainty -- and Ted said this, the uncertainty that it presented to the client base was just -- it froze them for a while. And they just -- and if you think about a year ago, when this all began to start, it was like, oh my God. But then now the pattern is very much there's a negotiation rhythm, I think, that's going on of the administration where things get announced and then it's generally okay. So I think a lot of the client base has gotten relatively numb to some of the headlines. Whether that's right or not, we will see. But what has happened in the client base is -- and remember, Erika, if you go back to '25 and '24, we had really robust capital markets activity. It was like 95% refinancing. So there was no new money content and new money content is where the exciting things really happen. There's been a real pivot starting probably in December to new money transactions, and that's both in private equity and in the corporate side. So you had a lot of people -- and I think this goes all the way back to COVID, who had pulled in their range and said, I'm going to run my business very conservatively. I'm not going to over-hire. I'm not going to leverage. I'm not going to invest -- that's definitely shifted. And people see an opportunity. And I don't know if it's because they want to try to get in before the midterms, they want to try to get in before the general elections, but they want to move. And so I think there's quite a bit of stability in the markets, notwithstanding the software and AI rotation that's going on and a lot of that. But I think the macros feel really good to me right now in terms of the backdrop that we're sailing into. So if you combine what we think we've built from a client service and a product standpoint with a pretty good environment, and we look out into '26 and '27, I just think it's a phenomenal kind of opportunity for us. And then you're going to get bumps in the road and things get volatile and things might slow down from quarter-to-quarter. But as Ted said, our pipelines look great across all products, and we just feel like there's a real opportunity to really get to where we think potential was. And I'm not going to tell you what we think potential is, but it's higher than we are today.

I was about to get more excited. So to that end, you have participated well in the indirect lending growth. Given your comments about net new money investments and your -- the diversity of your pipeline, do you think direct lending is something that -- to the companies, right, to the middle market companies is something that they grow in '26?

It's interesting. I -- and I don't want to say this firmly, but I can't think of many places where we've lost significant business in the middle market to a direct lender, where we see them is in leveraged buyout land. And what they do -- so go back to the real macro around how we think about leveraged finance. We are a diversification institution. So I hold an average of $12 million in a leveraged buyout. So I'm not counting on leveraged lending to drive NII. That's an origination to distribution business. And so whether we're distributing to, as I said before, banks, CLOs or private credit, we still make the same kind of distribution fees. And Ted's hired a couple of people on our syndicate desk, which do nothing but give syndicate services to private credit funds. It's a specialty kind of acquisition. And for them, it jumps off of our industry expertise because you've got to know which private credit funds like, which industries and where they want to play in size and what their metrics are. So building that distribution acronym. So if I kind of think about the math, and we've moved from lending to a leverage buyout to lending to an underlying private credit fund and financing those portfolios, we make just about as much in terms of fees as doing a leverage buyout as we do arranging a transaction for a private credit fund, and you're trading idiosyncratic credit risk for diversified borrowing base credit risk at an entry point of $0.60 on the dollar or thereabouts where we have substitution rights. So this is kind of an investment-grade quality where we're participating in leveraged finance through an intermediary vehicle as opposed to direct. So I'll do that trade all day long. And I think the one thing that I'm proud of is we've stayed ahead of a lot of these trends, and we could see it coming. And part of that is -- and we've never really talked about this, the level of expertise that have been through multiple set of market disruptions that are sitting on our platform is extraordinary. So they have -- they've been doing this for 10, 20, 30 years, and you can kind of see the movie as it unfolds, and I think we've positioned the company really well. So we haven't lost a beat. And in fact, we probably have achieved slightly higher loan growth than we otherwise would have by participating in the private credit complex. I don't know if you want to add anything.

Yes. The thing I would add is the acquisition of JMP in 2021, where they had such expertise in providing equity research on these type of companies has positioned us as the direct lenders have grown to be able to find fee opportunities with these lenders that we never had the ability to do prior to JMP. So when they go to the equity markets, when they go to the bond markets, now when they go -- when they want to consolidate, we now have the expertise to do any of those type of transactions for them. So as this complex continues to grow, I think we feel really in a great position to take advantage of the growth with a whole series of different fee opportunities and balance sheet opportunities that we never had in the past. So to Don's point, we've embraced this community. We stayed ahead of where the rest of the market is, and I think we're going to see the fruits of our labor really in the next couple of years.

Are we just at the beginning of the Big Beautiful Bill impact to the CapEx cycle?

Yes, we're at the beginning. We're seeing some minor impacts on that. We're seeing slightly elevated usage of our balance sheet of our utilization on our revolver lines are slightly higher than they were. I don't know how deep it's going to go, but we are definitely seeing some impact with that with companies who for 5 years, to Don's point earlier, the concern after COVID is do I invest? Do I want to take this risk? We are starting to see some of that impact. Hard to say whether it's a Big Beautiful Bill, hard to say whether it's just we've been 5, 6 years and we haven't made CapEx investments. It's finally start doing it. But yes, we're starting to see some pickup there, which is part of our loan growth that we expect to see in '26.

So Don, Ted earlier talked about expansion markets, Florida, California, New York City. If I missed something, please be additive. I think it's very clear what the answer is after talking to you guys for 20 minutes, but you see -- you're distinguishing yourself by being a complete solution, right? So maybe unpack that a little bit in terms of when you enter those expansion markets, how you end up winning?

Yes. So I think it's different by market. So one of the things that Ted didn't mention that is important about these expansions is we now have brand. It was very hard for Citizens to roll into Florida because it was like who's Citizens. And there's 43 different citizens that we compete with. So it's very confusing to people. So the fact that we're in these markets with the Private Bank that we're in California with -- and New York with an investment bank in the form of the old JMP, which we rebranded as Citizens, you're starting to get that Citizens brand out there, which is -- the conversation doesn't start with who are you? It starts with, oh, yes, we've seen the kind of things that you're doing. So I'd say we're playing the different markets, and we're seeing that dynamic slightly differently. So New York, we did investors. We did HSBC, which gave us a big branch network, very big business banking growth, very big middle market growth in New York. And we were already in New York in size, not banking corporates per se, but banking the whole sponsor communities in New York. So we were all over New York, and we were in the capital markets. And so we were reasonably well known in New York. And I think the way we've done New York City on our side of the business, we've hired outstanding bankers from the money centers, both JPMorgan and Wells and I saw all my friends from JPMorgan and Wells. So it was just they were ready to move, and we're hiring teams in Long Island and New Jersey and New York City, and the transaction is quite strong. So that's kind of a regular way middle market. And the way we play all of these markets is not only are we full service, but we pay attention to you. we really are all over these companies. And our service model and our service bundle, and that's been even more reinforced with the private bank. If you think about what First Republic was, it was all service service, service service and one-stop shop. So that's the way we play in New York. Florida has been interesting. We have all of that. But what we're finding in Florida is there are a lot of middle market companies, which are with smaller banks who don't really want to be with the gigantic mega banks. So a lot of our wins have been companies that are outgrowing their original relationships and need a fuller service platform, whether it be trade or treasury services or capital markets access or whatever it might be. And then California, it's really a new economy play. And we're trying -- there's been a real void created in the California market with Silicon Valley Bank and First Republic and a little bit of Union Bank, not as present as they once were. So there's really a dearth of provision. We're not going into the pre-cash flow financing arena, but we do have some partners on the private credit side that are working with it will provide some of those facilities. So working -- that's back to the private credit complex, working with those people to provide financing into some of these situations, while we can come in and provide early-stage research versus JMP, provide good tech banking, provide biotech banking, provide fintech banking. It just seems that that's the angle that we're playing in California. And I would say that the strength of our private banking capabilities in California are unbelievable. The reach they have into the Silicon Valley, San Francisco community and the network effect that gives us in terms of just people that they know where doors open and we can have -- and I'll go back to one of the things that Ted threw out is this whole One Citizens thing. It sounds cliche and a lot of banks talk about it. It's really powerful. And so -- and again, it comes back to do you have excellence of client interaction and excellence of execution in every touch. So if we were coming in with a mediocre set of capital markets or advisory capabilities, the private bank wouldn't swing open the doors. If they were coming in with a mediocre private banking opportunity, we wouldn't swing open the doors. But the quality of the capability set that we've put together, I think, is allowing us to leverage one another, and that's probably happening most powerfully in the private sponsor community and in the California market. So each one is a little different. And one of the things we are really careful about is one size does not fit all, one strategy does not fit all. As Ted said, we're doing a much better job, I would say, probably 95% of the clients that we've added in the expansion markets have been full wallet treasury services clients. So we're in there saying, this is a quid pro quo that has to be part of the move of the relationship. We want everything. We want the deposits, we want the treasury services. And now that those businesses are really up to snuff against any of the competition, which they weren't 10 years ago, there's a much higher degree of likelihood that we'll win all that business is what we're seeing. So it's exciting. And then I would just say one more thing, and Ted has driven this. We've taken everything that we're learning in the expansion markets and asking ourselves the questions, do we have an incremental opportunity in our core markets? I mean our talk track in our core markets has always been we have #2 share or #3 share. We're kind of saturated, but we actually don't think that's true anymore. So you should expect us to see some new growth in some of our core markets also.

So to wrap this in a boat, Ted, underneath the spot loan growth guide of 3% to 5% for the firm, what is the contribution from your business for this year?

We are seeing good opportunities. Again, I think I mentioned earlier, we're starting to see the middle market companies start utilizing their revolvers, which is a good sign for loan growth. On the mid-corporate side, we've been involved already with a couple of acquisitions that have required us to use our balance sheet, which we like to do to fund those acquisitions. That is going well on the sponsor side of the business, we -- with the pickup in acquisitions, we see our subscription line business going up. We see our lending to the directs, that business starting to go up, too. So we feel like the utilization in all of those businesses are doing well. Overall, if we continue to see this M&A pickup, that will fuel a lot of our loan growth just by the natural ability to go off of our balance sheet. That, combined with, as Don just talked about, the expansion markets, we think there's plenty of opportunities to see balance sheet growth in Florida, California and New York, which we are patient -- we're not -- we -- are small percentages to our overall loan growth, but incrementally, we can see some pretty decent sized jumps in those areas. So we feel like the commercial bank is going to be a healthy part to what's going on in our overall guide.

So before I leave it to you for a key takeaway, Don, since you mentioned that there was clearly some volatility last week surrounding software valuations. I think we're way past the cockroach conversation. But generally speaking, I think that the investors are right. They're looking at sectors, right, rather than just credit overall. Are there any sectors where maybe it's flashing yellow in your minds?

No. We don't have much in the software arena. So we're watching that. And when we look through into our private credit exposures. And again, we see what they have and we see what's going on in the portfolios. We don't see anything in that, that's particularly worrisome. I mean it's low single-digit percentages of our portfolio. So it's just not a significant business for us. I'd say we're watching retail. And again, we don't have that much retail, but anything linked to the lower-end consumer with this K recovery that's going on, you got to have a little bit of an eye on. We've had some eyes on biotech, although that seems to be coming back again. We -- our exposure there is we have a reasonably modest kind of bio real estate portfolio, labs and things like that, but those seem to be being fed and kept alive. We haven't had any losses or distress in there of any significance. Health care in general, again, it's -- we'd like to be bigger in health care. We're not. And with all the changes going on in reimbursement and what's going to go on with the restructuring of health care, you got to be focused a little bit on that sector. And then, of course, the whole data center space where we do have exposures, but we think we've been really prudent with the way we've structured our activities there. And there's some structural degradation that's going on in certain parts of data center lending, which we haven't gone there yet. But there's going to be a lot of volatility around -- I think the macro is intact, but I think there'll be a lot of questions, whether it be across power, across water, across data center. But I think the way we've structured what we've done so far feels pretty good. So if I look out at the C&I books and the like, we've got an idiosyncratic thing here or there, but there's no major, major themes as it relates to the portfolios that we're running that worry us. And then I think there's a little bit of a -- you just have to always keep an eye on regulatory shifts and changes that are coming out of Washington and what does it mean from -- and it's really not necessarily an industry thing per se, but it's a company-by-company kind of event. And then the leverage portfolios are holding up pretty well. So we don't see a lot that really worries us right now. So I think that just feeds that whole narrative that we think it's going to be a good backdrop to be -- not going to have -- and I think that's true of the industry. So you're not going to have a lot of banks kind of inwardly focused on problems. They're going to be focused on how do we actually get business done.

Growth has been a big theme this morning.

Yes. That's good.

So Ted, before we sign off, what is the key takeaway you'd like to leave the investor community about your business and how you could really help the firm accelerate towards that 16% to 18% ROTCE target?

Well, it's exciting, and I couldn't be happier about where we are right now. I think as we started this conversation, we positioned this bank to be -- we position our commercial bank to be in great position to take advantage of the market we are in today, which is, I think, will be dominated by larger -- more M&A, more transactional business versus the market we've been in the last 3 years, which has been -- or 4 years, which has basically been a refinancing market. So we've been investing and we've been spending our time so that when this market comes, we will be in a great position to win our fair share of transactions. Based on our pipelines right now, I feel like we're in a great, great spot to -- and I think our strategy has gotten us to where our pipelines are. Now the most important thing we have to do this year and next year is execute as well as I think we can to prove that we belong to and we deserve to get the businesses we're getting, whether that be the best price for a company on a bank deal, the best valuation for a company on an M&A deal, the best execution in putting our treasury solutions to a company. We have to, one, first and foremost, execute. I think with that, we'll have the ability to continue to invest in more and more industry verticals that we can distinguish ourselves into, put more resources into our expansion markets on the middle market, continue to build out our mid-corporate industry coverage, which has -- again, we've just changed that and hopefully continue to invest in the private capital community as we continue to still see that as a growth vehicle going forward. So if we can execute, if we can make the revenues that I think we're well positioned to make, I think taking and putting our foot on the accelerator and staying ahead of where our competitors are is what our real goals are going forward.

Great. Ted and Don, thank you so much for joining us here in one of your expansion markets, Florida.

Thank you, Erika.

Thanks, Erika.

Thank you.