Citizens Financial Group, Inc. ($CFG)

Okay. Great. Okay. Good morning, everyone. Welcome to the last day of the SDC. I'm Ken Usdin, the large-cap bank analyst at Autonomous. Really pleased to end our session on the bank side with Bruce Van Saun, the Chairman and CEO of Citizens Financial Group. Many of you will know that Bruce has led Citizens since 2013, on a journey of business expansion, improving growth and rising returns, which we'll talk through in our session. Before we go, you can put any questions you might have through the Pigeonhole app. And with that, Bruce, thanks a lot for joining us today.

Sure my pleasure.

So Bruce, we've been starting off in all these sessions just talking about the big picture because it's been 1.5 years and 5 months, what it feels like. So give us a state of just how you see it from a customer base, consumer, commercial, how is the economy holding up? And what are you seeing as you look ahead?

I guess, I'm quite impressed with how resilient the economy really is. So if you said, we'd have a war on an energy prices would spike and a bunch of other phenomena out there, they're proposing challenges that you wouldn't translate that into where the equity markets are trading where credit spreads are trading. The unemployment rate hanging in where it is, everything markets seem calm in light of external challenges. And I think companies actually have -- if they've learned anything over the last 5 or 6 years, it's -- they need to be resilient and adaptable, and think through all the twists and turns that can affect their performance and make sure that they're prepared. So just like banks have had to do stress testing and identify risks in the external environment and be prepared to make sure we're hedging those rich and cognizant of those risks. I think individual companies with their supply chains, whatever, access to talent. They've actually developed strategies, coping strategies to get through. And so most companies that we -- bank are having really strong performance. They've had a good year last year, notwithstanding all the liberation day challenges. They're notwithstanding the war. They're having good years this year. I think everybody is kind of still a little kind of circumspect about going fully on offense. They want to play offense. They're making the right investments, but they're not fully leaning in, I think, until some of the uncertainty subsides, but we don't see any credit risks on the corporate side. And same thing with individuals. We have the more well-off people are thriving with stock markets high and real estate value is high, the people kind of lower earners still, I think, are doing okay. The major support is the job market, they're employed, which is the most important thing. And they're just rejiggering what they spend money on, but still spending, which is important to the economy. So I'd say it's a pretty solid backdrop a bit surprisingly so to operate within. And the deal activity, too, is surprisingly resilient as well. So you're just seeing folks continuing to want to put money to work if they're pooled funds in vehicles, whether it's on the equity side or the debt side and you're seeing strategics. There's a lot of M&A taking place. We have a relatively permissive regulatory environment around approving deals. So all of the deal pipelines are kind of at really, really strong levels.

Yes. Yes. So as I mentioned, you -- Citizens has been on a long-term journey on every aspect of the bank, transforming the Consumer Bank, building out a best position -- better positioned Commercial Bank, the new Private Bank and the upcoming and ongoing Reimagine the Bank initiatives. And these are all -- we're all going to expect to boost profitability over the course of time. So as we kind of break down those down, let's start on the consumer side. Can you talk about, what are your key priorities right now, especially on the consumer side in terms of gathering deposits and building scale, as you've talked about in the past, whether it's the New York City market and repositioning the branch network?

Sure. So we have this triangle of businesses, Consumer, Commercial and then Private Bank and Wealth and the consumers real value in building a strong financial institution is access to secure, stable funding, low-cost funding. And so that's really the name of the game is how do we create the right approach to go to market. We've moved over time, more upmarket from kind of serving the whole market to really targeting mass affluent households and affluent households, which really dominate our footprint and making sure we have a good value proposition for them. Part of that is leading with products like HELOCs because a lot of those customers own their own homes. They have a lot of tappable equity in their home. They need advice. How do I pay for sending my kid to college? How do I start saving for my retirement? And so I think we've really done a nice job there. And we've grown the mass affluent households faster than anybody in our peer group over the last 3 years, 5 years, pick a time period. So that's been important. Part of that is upskilling the folks that meet the customers in the branches. And so investing in what we call private client relationship managers, small business specialists. And so the branch has become more of an advice center with specialists there and really leaning into that trend has been important. I think another thing that we're looking to do is take a hard look at the physical layout of the branch system. So we have about 1,000 branches. And we still have a relatively high percentage, I think it's over 100 are still in supermarkets, in-stores. And so you don't get the full power of market presence with an in-store. You get efficiency, but you don't kind of generate the same deposits. And so one of the things we're looking at is in each micro market, how do we optimize that if we want to pull out of the supermarkets where do we put the de novos, where do we convert those into traditional branches. And so we have an effort that's going on. I tease that on the first quarter call. We'll reveal a little more about that one at the -- I'm not sure we'll change materially the points of presence, and this will happen over a long period of time. But I do think it will accelerate our deposit gathering rate to be in the right locations with the right type of branches. I think New York is one area that we've done phenomenally well. So for those of you who don't follow the story back in we bought HSBC's East Coast branches and then Investors Bank, the so-called 1, 2 punch to get into this market, and it's been very successful. So we bring our style of banking into a heavily competed market. It's our fastest-growing market in terms of household growth and deposit growth. But there's even more opportunity, I think, once we've proven that we can -- if you can make it here, you can make it anywhere being in New York today, that we can start to scale that a little more gradually over time and continue to really get some nice attractive deposit growth in this region. So to me, it's really for consumer about the deposit growth trajectory and then also the wealth cross-sell would be the 2 things. And then really, I think, leaning into small business where I think that's a typically underserved market, and there's a lot of opportunity there.

My real life proof point is my daughters even noticed the Citizens green offices in the city park here and there.

There we go.

On the lending side of consumer, can you touch on the strategy across the different lending products, HELOC, mortgage, et cetera?

Yes. So I think consistently, we'll always have growth led by HELOC just because that's bellwether product for the strategy overall. And we're really good at it, by the way. We originated more HELOCs in the whole country than any other bank, even though we only originate in our footprint in 14 states. We've taken all the pain out of that origination process. And so we can start to finish, originate on average in 14 days, and the industry average is like 45 days. So we really, I think, dominate that product mortgages is always going to be an important product to offer to your customers. And so we'll get continued growth. We don't need to see big growth there. And we've got to make sure we're focused on using the balance sheet for deep relationship customers. And then the other thing I'd call out is probably cards, where we launched a new card family last year. And kind of gaining more primacy with our customers. We actually have pretty good distribution, but people may be using other cards ahead of our cards. And so how do we change that equation. So we have a number of strategies to do that. We're starting to see some green shoots on that.

Okay. Got it. So on the commercial side, where you've built out a real full service commercial operation where do you see the biggest opportunities, both for the lending side, but also as importantly, on the fee side. You've built this capital markets business? And where do you see that really the potential of that over time?

Yes. So we like to kind of modestly say we're the best positioned super-regional commercial bank. And I think that's really on the strength of the capital markets capabilities that we put in place. And so it's a combination of coverage. So where do you focus? And we have coverage of middle market in certain geographies. And then mid-corporate, which are companies bigger with $500 million in revenues to $3 billion, where you have to have industry verticals and industry specialists and expertise. And then the sponsor community, which owns increasingly probably half the middle market companies in the country are owned by sponsors. And so we got on that really early and built strong capabilities to serve the sponsored community and build relationships with the leading sponsors. And so I think we've been really astute in how we've built out the coverage and leaned into the verticals where we think there's going to be a lot of opportunity. And then kind of brick by brick over many years, we built out all of the product sets. So not just traditional syndicated loans and other products that banks sell the treasurers, but the debt capital markets capability, securitization, equities capabilities with the JMP acquisition, bought 7 M&A boutiques. So we have pretty widespread M&A capabilities across all important industries. So anyway, I do think that, we haven't seen the full relative differentiation of what we've built relative to others in the last 5 years because we've been in a subdued market. So now that things are ticking up, I think we're just going to capture a lot more opportunities, and we should have a faster revenue growth acceleration because our peers have quite a ways to catch up to us. And beyond that, I think the whole payments space has been really, really interesting. And there's a lot of opportunities there. We've consistently been investing in our, what we call Treasury Solutions business. And I think our growth rate has been kind of high single digits as a result. And then I think there's more to go there. So like embedded finance, interesting, a lot of these fintechs who had partners with partnerships with smaller banks, they're outgrowing them. and then they look around and they say, where do I go to get broader capabilities and kind of the super regionals is a sweet spot, I think, for them because going to the very biggest banks, it's just take a number we'll get to you when we get to you, but they can get a lot of attention from banks our size.

So the third piece of the triangle, the Private Bank where you aspire for it to be a teens contributor to earnings over time. And you've got a big ROE target on that, 20%, 25%. Where are you still looking to add talent and expand? And what do you think is going to be the incremental driver of the growth as you go forward?

So again, this is -- it was a big bold bet to do this in '23 and hire 150 of the top talent from First Republic to be the foundation block for getting into the business. That number now, we're over 600 people in the business. We now have 9 PBO locations. We really are pretty full in California in terms of investment in Northern Cal and Southern Cal has been pretty much built out a few more PBOs to go. And a couple of more wealth teams that we'll likely add there. But that was the region that was First Republic's home region. So we had access to the talent and good name recognition out there. So that's gone very well. Florida is another really important state for us. And given we're a bank in the Northeast and a lot of migration down to Florida or second homes down to Florida. We started there with 1 location in Palm Beach, which just opened a second in West Palm Beach. We have Boca geared up for next year. And so you'll start to see us, I think, emulate what we've done in California and thick in Florida over the next 3, 4 years is in the plan. And then in our current footprint, we have a flag planted in Boston, and we have 1 here, which is right across the street. So if you want to look at our nice signage there, street-level PBO flagship here in New York, 52nd and sixth but we'll continue to, I think, open some satellite offices. We have a plan to open in Greenwich, which was a very good location for First Republic. And then in Boston, we're right on Boylston Street. But we're looking at do we open straight PBOs or do we maybe convert some of our high-end retail places like Wellsley or Chestnut Hill, do you have both style retail and private bank or do you do a conversion. So those are some of the things we're thinking about. And then I'd say we also need to get into Philadelphia because that's also a very big market for us. So we're looking at how to do that.

Got it. Reimagine the bank aiming to get $450 million of efficiencies by the end of '28. How is this new plan going to change the way that Citizens operates differently, organizationally? And how do you think about that balancing act between reinvestment and driving efficiencies to the bottom line?

Yes. So I would say, we've had a good long track record Project TOP, tapping our potential, where for like we had 10 TOP programs that generated between $100 million and $200 million generally of benefits, but they were kind of probably a little more on the tactical side than on the strategic side. And so last year, when we thought about are we going to do a TOP 11 are we going to do something grander. We said, let's look at all the massive technology innovation that's occurring and let's like take advantage of that to put just a more strategic program in place. And so we took maybe 25 of our top leaders to the side in the summer of last year and said, let's look at all the things the bank does. So how do we onboard a customer, how do we service the complaint, how we deal with the fraud issue and draw the picture about people, process underlying technology. How does it work today? And then to kind of draw like what could it be if we start with the white canvas, how would you introduce these new tools, introduce AI agents, change the composition of the workforce, so you have human and agents working side by side, and basically kind of pulled that all together in a program, which has probably 50 initiatives today, that are built around 5 or 6 main blocks, but I think it's exceptionally exciting. And we're immersing our people. We just had an off-site for the top 130 people up in Rhode Island the last 3 days, and we spent a good 3 hours immersing everybody in kind of vibe coding and programming agents and stuff. So I want that people on the top of the house to really roll up their sleeves and know how this works, so they can drive it throughout the company. So -- anyway, I think the nice thing that we're offering relative maybe to some others, everybody is doing this and experimenting with it. But we have this mindset that we are good at setting up programs and executing programs and setting financial targets and delivering against those targets. And so I think that's why, Reimagine the Bank, stands out a little bit is that we're kind of putting the numbers out there. And when we put numbers out there, we make sure that we can deliver those numbers. It's not -- to me, it's not just the financial benefits that come from it. I think it's a huge uplift in customer experience. And to me, with all the competition and rising levels of competition, you really have to deliver for your customers and make it a great banking experience. And so to me, that's as much of the prize as the efficiency, although finding money that flows through the bottom line is also really valuable. So we haven't we have a trajectory where we get to 16% to 18% ROTCE without incorporating the benefits of Reimage the Bank. So it's tantalizing like, well, how much is going to flow through? And could you actually move 16% to 18%, if you'd say 1/2 of it flows through or 3/4 of it flows through. I'm trying to demur from answering that, just say let us get this thing rolling and let us think it through and let us see like what the other investment opportunities are and kind of what overall expense growth rate we want to manage to. But it's nice to be in that position where we have that flexibility.

Yes. And on AI point specifically, as you do integrate that into the efficiency improvements, productivity improvements, do you see that as also a potential add to the like long-term financial performance of the bank big conversation about like is it a net add? Is it net neutral? Does it just allow more reinvestment? Where do you stand on that?

Well, I think it's additive. I definitely think it will make us a better competitor. It will allow us to operate more efficiently. I'm not sure all that gets competed away at the end of the day, I think it is a boost to industry ROE.

Yes. And so on the competitive point then, more competition coming from more arenas than we've ever seen. So a couple of different pieces about that. On the banking side, from the deposit perspective, how do you see Citizens and even the industry defending against all these new deposit evolution or products, whether it's tokenization, stable coins, agentic, AI, et cetera.

Yes. I think banks offer kind of full service so they focus on providing balance sheet. If you need loans, we can give you loans, we take your money. We take your deposits. We offer you advice. And so being a trusted financial partner and adviser is pretty high ground that we're occupying. And so the disruptors coming in are trying to like focus on the loan origination experience or I'll focus on an alternative way to handle your deposits, but it's very hard for them to migrate more broadly and occupy that kind of higher ground that banks occupy. So we're watching all of those developments. And making sure that if stablecoins are going to take off and there's good use cases for our clients that we'll be in position to do that if tokenized deposit is an industry response to stablecoins that will be in the consortiums that allow us to do that. And so -- and when you talk about agents and are they going to make it sharper in terms of pressure on deposit cost because they'll look for better opportunities. I'd say we're already at the -- if you look at corporates, if you look at high-end wealth customers, you look even at the high end of retail and digital offerings like Citizens Access, there's plenty of that already where people are trying to optimize. And then there's other players who value the total relationship and are just not going to maybe go through the effort to optimize a little bit. If their balances are lower, is it really worth it to me. So I'm not sure that changes a huge amount. If it does over the next 10 years, put a little upward pressure on deposit costs. It's one of the reasons that we have to use the benefit of AI and agents to lower our cost structure to keep our profitability in the same zone. So I'm not that worried about it. I just want to be kind of always on the front foot leading in assessing what's going on and how are we going to play it.

Yes. And speaking of other things to potentially worry about or banks are worried about the cyber threat rising ever cost going up to just defend against it. Do you just have to keep up with whatever is needed on that front different than you do?

I mean, I think those kind of things are existential potentially for any individual institution or for the industry. And so making sure that we have access to the latest tools and that we get really, really good at deploying those tools to search out vulnerabilities to be able to automate the patching and do that in a rapid way is really, really important. So you've got to start at the top by having really top talent in your organization. Your CISO has to be grade A. I think we have that, and the team is really strong. So it starts with people, but then the people are going to want to have all the latest tools and you just have to put that right at the top of the budget list for your CapEx every year. So that may cost a little money over time. But I actually think that these tools, people worry about them getting in the hands of the bad guys, but if the good guys get it first or kind of really are thoughtful about how they're implementing and protecting data and assets, et cetera, it should be helpful to the cyber picture in the long term is my view.

Yes. One of the points you touched on earlier is getting into that 16%, 18% ROTCE target by the end of '27, a long way from the low single digits when the company IPO-ed. Can you remind us just the main drivers of getting there? And then what would be those different sides of the range outcomes that should be the final mile?

So we're -- we just printed, I think, slightly over 12%. And if you look at consensus, we get to kind of high 14s, I think, by the end of the year. And that kind of what we refer to as time-based benefits. We have these legacy swaps, which were terminated and therefore, they have just an accounting drag that eventually burns off they're being amortized over the life of those swaps. And we had noncore was running down, and that was kind of at a negative yield, and that was providing a lift. So those 2 things, if you chart them out, actually continue to drive NIM higher. And so if you overlay that and pro forma that, let's say, we could all do that tomorrow, then you're already close to 15% just on the basis of that. And then you kind of look at the business momentum that we have, the private bank growing, its ROE is 25%. It's already 10% of our bottom line going to mid-teens. And so at the margin, that's helpful to the ROTCE progression. I think commercial having come out of a period of low activity levels into higher activity levels is going to throw off kind of more earnings and the strategies we talked about in consumer to keep growing low-cost deposits. All that adds potentially another couple of percentage points. We have credit still a little bit elevated due to CRE office, but we have that coming down from kind of where it was last year in the high 40s, down towards the mid-30s, which also helps that. And then the thing going the other way a little bit, is AOCI is creating a depressive effect on kind of capital and so it's boosting returns and that kind of pulls to par over time. So that goes a little bit the other way. But in any case, the I think the net of all those things gives us a lot of visibility and a lot of confidence that we can get into that range. And I would say the thing that the economic backdrop is always the thing that you have to think about. So do we end up in a stagflation scenario. That hasn't historically been good for banks. So if you have kind of high inflation and GDP is sluggish. And so it doesn't allow you to pull your credit cost down as much or it doesn't necessarily create the dynamism in the economy where there's a lot of deal flow. There can just be, I'd say, macro scenarios that may pull you down. But one of the things we've been very focused on is making sure that we're chopping off tail risk, because when we get into that return zone, if the macro turns against us, we want to be one of the ones who goes down the least in terms of our return. We don't want to I think we've been disciplined on credit. We have very strong credit risk appetite and discipline I think on how we're thinking about hedging interest rate risk. So the things that can be more volatile building up our fee-based businesses, trying to just make sure that we're solid and we can try to hug that range through time.

Yes. And I think as you mentioned previously, like getting to 16%, 18% doesn't necessarily mean it's the end game, but you want to kind of make sure you get there before you then see the other things...

Well, you know back from the IPO, like I said we're going to get to 10%, and you got to walk before you run. And you got 9 and everybody said, Bruce aren't you going to raise this 10, how does 10 to 12 sound? I said just let me get to 10% and then I'll tell you where I'm going next. So yes.

Fair, fair point. So as a checkpoint on progress before we get to the rest of the topics, that will flesh this out a little bit more. Any updates at all to either your second quarter or your full year '26 outlook that you've made in April?

Yes. No, I feel good about the guide that we made for the full year. I said that on the call. I still feel really good about that, and I feel good about the quarter. So the quarter is progressing the way we thought it would.

Okay. Coming back to deposits. You mentioned about growing low-cost deposits and also you've proven the ability to take deposits down with rates coming down. And so now that we might be holding here a little bit longer at either current rates may be even going higher. Competition is not getting any easier out there. What levers do you have to either hold the line or continue to ratchet down in places or whether you're back book support or whatever that you can kind of just make sure that you're hanging in there and don't have any changes to your business?

I'd say loan growth across the industry is a little more than people expected coming into the year. And so that means you have to fund it. So you need deposit growth. And so I do think there's a little bit more pricing competition as a result. We anticipated that. So we had, I think, a relatively robust loan growth forecast coming into the year. And so our deposit betas, we have kind of in the kind of high 40s, which we were 50%, I think, in the first quarter, the cumulative beta. So I think a little of that is built into our outlook that we anticipate a little more competition. But there's some fundamental drivers that we have, like the private bank growth. We're now at over $16 billion in deposits. And kind of at least consistently, we've had about 1/3 being in noninterest-bearing and low-cost being in the low 40s. And so just continuing to grow that deposit base with attractive mix is more idiosyncratic to us than the things that you would see across peers. And then I think we're quite sharp in terms of our algorithms and pricing in the consumer bank. I think we've gotten quite good at that. And in the commercial bank, we've been building out kind of new places to go fishing for deposits. And so kind of escrow services, bankruptcy services, there's things that I think, allow us to expand where we gather deposits, which can also be helpful.

Yes. So with a caveat that net interest margin NIM is an output, -- you guys do have an expectation of expanding the NIM from 3.14% in the first quarter and getting it to 3.30%, 3.50% by the end of '27. And just what is higher for longer due to that expectation set? Does it change it at all make it better, make it worse given the points you made about deposit costs, loan growth and just obviously, where the economy is had?

Well, that forecast was predicated kind of on 2 things. One was the external rate environment. So where is the Fed funds rate, what's the shape of the yield curve. And the other thing was our own balance sheet movement are the dynamics around our balance sheet. And so I would say, on the macro side, the kind of higher rates and steeper yield curve is generally a positive. We've maintained is relatively modest, but still asset-sensitive position on the balance sheet. So that's positive to that. And then the balance sheet dynamic, I think, is kind of within the context, it's still hugging the context of the projections that we had. And so we'll just have to see if that changes at all. But if, in fact, loan growth were higher and deposit competition were greater, that could be kind of slightly negative to NIM over time, but you would make up for it with volume. And so you'd probably take that trade. But I don't think any of those movements take you out of the cone. So I still anything that you could foresee, I still think the cone looks like the place it will end up.

Yes. Understood. I want to come back on a point you made about taking out the tail risk from credit and naturally lowering the kind of risk profile of the loan book over time. We've seen it for the last couple of quarters. Are you confident that even with what we're seeing in the macro, whether it's oil and gas or just other uncertainties that the trend over time towards a lower natural net charge-off rate for the company can be achieved?

I do. And I'd say, again, the risk appetite around the corporate book has been very stringent. And as we do more NBFI lending, which everybody is doing, that's really investment-grade lending. And so you're kind of risk of loss goes down. We've been running down CRE after we bought Investors Bank. We were bigger than we wanted to be. And so again, CRE I think, can have higher credit losses depending on where you're planning. And so having less of that having higher investment-grade corporate exposure is positive to risk appetite. and then where we're playing on the consumer side is really kind of high prime and super prime, it's where most of our exposure is. Over 70% of our consumer exposure is real estate backed. So it's collateralized. And where it's not collateralized, it's typically to people who are homeowners and have kind of very good credit scores. So I think that over time, we've just continued to refine that. We got out of businesses like auto, that have relatively higher charge-off rates. And so the mix has really improved over time.

Yes. And even some of the challenges you had over the last couple of years post pandemic with office CRE, you guys had put up a huge reserve on it and even...

We're just working that out, and there's really no surprises on that. So Again, I don't see real trouble spots at this point that would be worth calling out in kind of certain industries or things like that. I think as I said earlier, the companies have figured out how to cope with different shocks and they're resilient. And so nothing really to call out.

You mentioned NDFI and all the banks, including you guys put out some really good disclosure and confidence in your quality of your book. just that you mentioned also that you're building out the sponsor business, and it's a piece of the ecosystem that you guys have been facing for a good while in the investment bank. What's sort of just view of how Citizens will face that in the future. And any evolutions in how the banking system faces the private markets and how that push and pull will go.

Well, I'd say, again, because of our early focus on sponsors as the sponsors, equity sponsors grew more into broader asset management complexes and they got into private capital. We were there as their partner to help them think through like how to go to market, what structures they should set up what leverage we can introduce to help them get to their return targets. And so I think it's been a good journey for us to solidify those relationships and be selective about kind of where we want to play and who the partners are that we want to be bed. And so I feel really good about kind of that strategy that we set out on and that these are very big successful firms that have a lot of needs across their equity arms, their credit arms. They have partners who need wealth advice, they want to have lending to their partners so they can invest in their fund vehicles. There's so many touch points across what we do in the Commercial Bank, what we do in the Private Bank. That this is a real focal point for us and a huge opportunity to get that right. We have something we call One Citizens where we're sharing our books of relationships. And corporate bankers are bringing in private bankers and vice versa. Like last year, we had roughly 400 sources of referral back and forth about 300 were the Corporate Bank bringing in Private Bankers and 100 went the other way than the Private Bank and private wealth brought in the corporates. But if you can do that well, if you really have these deep relationships, the clients really like that and respect it that you know them so well and that you're bringing total solutions to help them be successful.

Yes. So in terms of capital, you noted on the recent call that we've seen the Basel III proposals looks to be a nice benefit potentially to Citizens and other regional banks you guys mentioned potentially 10% RWA reduction. First of all, I guess, are you comfortable with the proposal as is? And do you expect any potential changes to it as we get through the comment period and finalization?

Yes. I'm comfortable the way it is. I think there's 1 thing that if you're not in the advanced approach, then you don't get the same risk weights on corporate credit. And so that's a comment that you would suspect that the regionals would like to see that more equivalents there. So we'll see how that plays out. But generally, the kind of old framework was very blunt and conservative plant. So to actually have it more precise and really kind of be appropriate in terms of risk weights, in terms of this extra conservatism will allow for, I think, better capital allocation for the economy. And banks will follow the lead because their economic models would tell them something different than what the regulatory model said. And now with these changes, it's bringing it more back in line. So I think fundamentally, it's a good thing.

And for citizens specifically, it will add even more to what's an already strong capital base. Does it change anything you think about either usage or managing the company?

Well, we'll have to see. So I think we pick up 110 basis points or something of set 1 and -- but we have the same balance sheet today as we will the day that we implemented. And then you have kind of the AOCI is now going to be counted in capital and then over time, that could wash out a portion of that maybe half. And so you end up -- it's a good problem to have because you end up with more capital. But like how does the market look at it? Does if you said I'm 10% to 10.5% is now you're 10.5% to 11% is where the market goes because it's looking at TCE to TA ratio or the rating agencies like don't going to get with the program. So I think you just have to see where it goes. But I'm happy to be in that position. I do think the bias is eventually you should be able to utilize that capital and bring it down.

Yes. So... And you guys have been doing a combination of being able to grow the balance sheet, and you've also increased your buyback activity recently. You kind of have enough room right now. So that would just be [indiscernible].

I mean 1 thing that we're looking forward to is the CCAR stress test results because I think we haven't had much joy in that process, and we've made our vocal displeasure and known. But I'm pretty optimistic that it's going to be a much better result.

Yes. On that point, because this year it won't result in any formal changes to your SCB, which still remains above the 2.5% minimum by more than other regionals. This year is more just like a ticket and tried.

Scarlet letter off, but it then is indicative. But what we've said in the past is that having a higher SCB hasn't changed how we're managing the capital. So now having the purported SCB be a decent amount lower, shouldn't really have that change. But it does signal to the market that we're a lot more peer like in terms of the business risk that we have on our balance sheet.

Yes. And I think the longer-term question that comes out of that is the combination of getting this Basel III benefit. And over time, with the aspiration that the SCB does go back more to peer-like if you're still at 10%, 10.5% or even more and the reg reform it goes back to 7%, isn't that a ton of capital for a bank like Citizens to hold?

Well, there's an opportunity, I think, to bring it down. But what I would caution is that -- and investors have a hand in this to say, like, you need to get more leverage in the capital structure, but then you look when the tide goes out and something happens. So when the West Coast banks failed and signature failed, a lot of people who had levered that capital structure spent years in the penalty box kind of rebuilding their capital, we had a conservative view on our capital. And so we were able to take advantage of that situation. We were invited in to go look at the failed banks. We were able to take a bet and do the start-up of the private bank. So maintaining a bit of conservatism in capital to me is always a good thing.

Yes. And other potential uses of capital would include inorganic growth or acquisitions. You guys have been on this long organic journey with the recent ads that you mentioned in the New York City area. As you built both local scale and add it to national businesses, do you have what you need to grow? And would acquisitions be a part of any requirement or necessity to get the company to another stage?

Yes. I think what we have what we need, and I've consistently said that kind of we did our big acquisition, which was the start-up of the Private Bank. And the nice thing about it is it's capital light. So we risked $100 million in start-up losses for something that's now 10% of the bottom line going, say, to 15%. And you look at these bank deals that people are printing and they're spending $3 billion, $5 billion, and they're getting 6% accretion or 7% accretion. So making sure that, that stays on the trajectory that, that business is durable, sustainable hardens that we capture that kind of white space that First Republic used to occupy. That's job one. And I think Reimagine the Bank and the potential benefits of that is job two, and just kind of executing our game plan. So at least in the near term, I don't really want to get distracted from that agenda. But you never say never. You're looking constantly at your footprint. Is there something that falls in your lap that could strengthen the particular geography. I'd probably say that, that's kind of potentially higher on a list if we eventually get to a list than going completely to new regions like some of our peers are doing.

Yes. Understood. Okay. Well, with that, I think we're through of the topics. We covered a lot of ground. So with that, Bruce, thanks so much for joining us. Please join me in thanking Bruce Van Saun from Citizens.

Okay.