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

Good morning, everyone, and welcome to the Citizens Financial Group Second Quarter 2026 Earnings Conference Call. My name is Ivy and I will be your operator today. [Operator Instructions] As a reminder, this event is being recorded. I will now turn the call over to Kristin Silberberg, Head of Investor Relations. Kristin, you may begin.

Thank you, Ivy. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, Aunoy Banerjee will provide an overview of our second quarter results. Brendan Coughlin, our President; and Ted Swimmer, Head of Commercial Banking, are also here to provide additional color. We will be referencing our second quarter presentation located on our Investor Relations website. After the presentation, we will be happy to take your questions. Our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I'll hand it over to Bruce.

Thanks, Kristin, and good morning, everyone. Thanks for joining our call today. We announced outstanding results for the quarter as our strong momentum continues. EPS growth was 15% sequential quarter 41% year-on-year, and our ROTCE improved to 13.9%. Our performance was powered by significant revenue growth. NII was up 4.4% sequentially and 14% versus a year ago, which was paced by continued NIM expansion and accelerating loan growth across each of our businesses. Fee revenues were up 8% sequentially, 9% year-on-year as our capital markets hit a second quarter record, wealth hit an all-time high and various payment-related revenues had a nice seasonal bounce. We maintained strong expense discipline, which resulted in positive operating leverage of 4% sequentially and 6.4% year-on-year. Credit continues to trend favorably as we continue to shift originations into portfolios with deep relationships and lower credit risk while continuing to run down noncore and CRE portfolios. Our balance sheet remains robust across capital, liquidity, funding and credit allowance. We were pleased about the DFAST stress loss results, and we anticipate further improvement under the new Fed models. Our key initiatives are progressing well. The Private Bank continued its consistent growth with spot deposits of $17.8 billion, loans of $9.7 billion and client wealth assets of $11.2 billion. We continue to attract some really great talent and we continue to broaden out and strengthen our capabilities. The business now contributes 11.5% of Citizens pretax income while maintaining an ROE of around 25%. Reimagine the Bank is moving along nicely. We are excited about how several of our early AI deployments are having real impact on how we operate and how we serve customers. We're also attracting some great talent into the commercial bank, given our strong position in the market, our focused strategy and our outstanding culture. We maintained strong deal pipelines and anticipate that higher activity levels can extend well beyond this year. We are continuing to refine a branch optimization strategy in consumer, which we have named NEXT, our network evolution and experience transformation. The objective will be to add specialists in select branch locations and to enhance our branch locations to achieve faster retail household and deposit growth over time. We are quite excited by this. We've shared a page in the slide deck that provides more details. We feel good about our outlook for the remainder of 2026 and feel we are set up for strong performance over the medium term. We have a distinctive strategy focused on a growing consumer bank, the commercial bank of choice and the premier private bank and wealth platform. Our talented leadership team is focused on further building up these businesses, leaning into the areas where we have a right to win and driving strong execution. With that, I'll turn it over to Aunoy for the financial details. Aunoy?

Thanks, Bruce. Good morning, everyone. As Bruce mentioned, we delivered strong second quarter results. record revenue performance and expense discipline drove more than 600 basis points of positive operating leverage year-over-year. Referencing Slides 3 and 4, we delivered EPS of $1.30 for the second quarter, a $0.17 or 15% improvement over the first quarter, and we saw solid improvement in ROTCE to 13.9%, up from 12.2% in the first quarter. Results reflect strong NII performance with continued net interest margin expansion and loan growth picking up across all 3 businesses and exceeding expectations. We also delivered better-than-expected fee growth for the quarter with continued capital markets momentum and a seasonal pickup in payments-related revenues across card and treasury solutions being the main business drivers. Importantly, we are executing well against our strategic initiatives, including the build-out of our private bank and our Reimagine the Bank program, which is progressing well. As Bruce said, the Private Bank delivered another standout performance, contributing $0.15, up $0.04 from the prior quarter, representing 11.5% of total EPS. We opened our tenth private bank office, adding West Palm Beach this quarter, and we continue to attract top quality wealth advisers to the platform. With respect to our balance sheet, we continue to maintain robust capital, strong liquidity levels and a healthy credit reserve. We ended the second quarter with CET1 at 10.4%, while executing $225 million in stock buybacks during the quarter. Now turning to Slide 5. I will discuss the second quarter results in more detail, starting with net interest income, which was up 4.4% linked quarter given the increase in interest-earning assets and higher net interest margin. Our net interest margin continued to expand this quarter, increasing 3 basis points linked quarter for a combined 10 basis point lift through the first half of the year. The time-based benefits from terminated swaps and noncore runoff contributed 6 basis points this quarter and fixed rate asset repricing added another basis point. Funding costs ticked up slightly as loan demand trended through the quarter across each of the 3 businesses. Importantly, though, we saw solid growth in DDA and other low-cost deposits, which helped mitigate the increase in overall deposit costs. We also had an increase in FHLB funding during the quarter to help support the stronger-than-expected loan growth. We continue to do a good job on optimizing deposits in a competitive environment. Our interest-bearing deposit costs were up 4 basis points and total deposit costs were up 3 basis points, reflecting the good DDA and low-cost deposit growth. And our cumulative interest-bearing deposit beta met our expectations at 48% as the Fed continue to hold rate steady. Moving to Slide 6. Noninterest income is up 8% linked quarter and up 9% year-over-year. This was a strong fee result, notwithstanding the continued market volatility associated with heightened geopolitical tensions. The capital markets momentum continued to pick up, delivering our strongest second quarter ever with fees up 14% compared with the strong first quarter and up 46% year-over-year. Loans indications and bond underwriting drove the outperformance this quarter. Both equity underwriting and M&A delivered good results in the quarter with performance broadly stable linked quarter. M&A fees were up significantly year-over-year, and our pipeline is strong and continues to build. We continue to maintain strong market share, ranking as the second middle-market sponsored book runner by number of deals and volume. This is for both the second quarter and over the last 12 months. Wealth delivered another record quarter with AUM growth in the private bank and in our retail network as well as a positive market impact. Wealth fees were up 2% linked quarter and 16% year-over-year. Service charges and fees were up $5 million, driven primarily by seasonality and new commercial clients driving growth in account and cash management fees. The Card business also delivered a strong quarter, up $6 million driven by a seasonal improvement in purchase volumes. On Slide 7, expenses were managed tightly, up about 1% linked quarter, and we improved our efficiency ratio to 61%. Second quarter results include implementation costs of about $7 million for the reimagined the bank program. Moving to loans on Slide 8. Average loans were up 2% linked quarter and period-end loans were up 3% with loan growth across each of the businesses. The Private Bank period-end loans were up $1.9 billion this quarter, reflecting higher commercial line utilization and strong originations in high-quality residential mortgage and multifamily lending. Spot commercial loans, excluding the Private Bank, were up $1.5 billion or 2% linked quarter. The commercial growth was driven by C&I with net new money originations in Corporate Banking and higher line utilization across both Corporate Banking and our sponsor business. This was partially offset by continued planned reductions in CRE, primarily more driven by multifamily and general office paydowns. Importantly, the C&I growth was fairly broad-based with the pickup in loan demand reflecting a positive backdrop for corporate clients with new investment and increased working capital needs. We are adding new clients and seeing new borrowings from existing clients, primarily across technology, health care, energy and the FIG sectors. Private credit funds are actively utilizing facilities as we grow our lead role in these relationships. We also saw some CRE paydowns push into Q3. Growth in retail loans ex noncore on a spot basis was about $800 million, led by real estate secured categories. This was partially offset by the noncore auto portfolio runoff of roughly $400 million for the quarter. Next, on Slides 9 and 10. We continue to do a good job on deposits. with average deposits up 1% or $2.3 billion linked quarter, primarily driven by the growth in the private bank and retail. Spot deposits were up $1.6 billion, driven primarily by the Private Bank, which reached $17.8 billion in deposits at the end of the quarter. Commercial also contributed to the period-end growth. Our consumer deposits represent 64% of our total deposits, steady with prior quarter. This compares favorably to a peer average of about 56%. Total noninterest-bearing and low-cost deposit mix was broadly stable at 42% of total deposits. Now moving to Slide 11. Credit continues to trend favorably with net charge-offs coming in at 37 basis points, down from 39 basis points in the prior quarter. Nonaccrual loans are down 4% linked quarter, driven by a decrease in commercial real estate as we continue to work out the general office portfolio. As Bruce mentioned, we are pleased with the results of this year's Fed stress test, which projected a credit loss rate that ranks third best amongst our regional bank peers. This is reflective of the work we have done to improve our balance sheet mix, running down the noncore portfolio and commercial real estate while growing higher-quality relationship-based lending across the private bank, commercial and residential retail. Turning to Slide 12. The allowance was stable this quarter with ACL coverage ratio at 1.48%, reflecting the continued improvement in our portfolio mix with the continued noncore runoff, the reduction in the commercial real estate and strong originations of lower loss content C&I, residential real estate secured and private bank loans. As we look broadly across the portfolio, the credit outlook remains positive, though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at 10.4%. We dipped slightly below our 10.5% target as loan growth accelerated during the quarter and exceeded expectations. We returned about $422 million to shareholders in the second quarter with $197 million in common dividends and $225 million of share repurchases. This makes a total of $920 million returned to shareholders through the first half of the year. Moving to Slide 14. The Private Bank continues to make excellent progress. The Private Bank delivered strong deposit growth again, ending the quarter at $17.8 billion. Importantly, the overall deposit mix and cost continues to be very attractive. We also delivered solid loan growth in the quarter, adding $1.9 billion of loans, driven by increased commercial line utilization and strong originations in residential mortgage and multifamily to end the quarter at $9.7 billion of loans. The portfolio maintains a healthy spread of approximately 4% over deposit costs. Client assets increased by about $1 billion to end the quarter with $11.2 billion of total client assets. We added another strong wells team in Southern California this quarter and we plan to continue adding top quality teams in key geographies. We also opened a private bank office in West Palm Beach, our 10th. Moving to Slide 15. Our reimagined the bank program is progressing well. The objective is to position Citizens for long-term success by embracing a host of new and innovative technologies across the bank and simplifying our business model. This will reshape our customer experience and drive a meaningful improvement in productivity and efficiency. Several key work streams are well underway, and we expect to hit our financial targets for the program with a minimal net cost for 2026 as we realize quick wins to cover implementation costs. We expect to exit 2026 with about $100 million of annualized pretax benefit, doubling that in '27 and reaching about $450 million as we exit '28. On Slide 16, we have an overview of our Network Evolution and Experience Transformation or NEXT or short. This focuses on accelerating consumer household and deposit growth while increasing revenue opportunities across our branch network. After creating a more efficient retail branch network over the last 10 years, we are embarking on a long-term initiative to now further optimize our existing network. The focus will be on eliminating approximately 100 to 120 in-store branches. We will add some stand-alone advisory and business banking focused branches, including selective branch consolidation and upgrades. We also aim to gain more density in high-opportunity core markets through self-funded de novo branch expansion at a measured pace. A key element of NEXT will be to add specialist talent in select branches with a focus on small business and wealth. The financial impact of this program is expected to benefit the medium term while not impacting our path to achieving our 16% to 18% ROTCE target. Moving to Slide 17. We we provide our outlook for the third quarter, which contemplates the Fed holding rates steady. We expect net interest income to be up in the range of 2.5% to 3.5%, driven by continued expansion in net interest margin and earning asset growth. Noninterest income is expected to be up approximately 1%, led by Capital Markets and Wealth. We are projecting expenses to be stable to up slightly. The charge-off level is expected to be stable to down slightly. And we should end the third quarter with CET1 at approximately 10.5%, including share repurchases of about $125 million. In addition, for our full year outlook, we are tracking favorably against the guidance provided in January. Revenue is trending above our initial guidance range which combined with expense discipline puts us on track to deliver over 600 basis points of positive operating leverage for the full year. Looking out further, we see a clear path to achieving our 16% to 18% ROTCE target by the end of 2017. We continue to improve our net interest margin, adding 10 basis points in the first half of and we project to deliver a 4Q '26 NIM in the range of 3.22% to 3.27% and in the range of 3.30% to 3.50% in 4Q '27. Slide 18 provides incremental details on our net interest margin progression to the end of '27. The projected margin expansion, combined with the increased contributions from the Private Bank and the diversified Capital Markets business we have built as well as normalizing credit should drive our ROTCE to the target range of 16% to 18%. To wrap up, we delivered a strong second quarter results, highlighted by record revenue and a robust level of positive operating leverage. We have a positive outlook for the rest of the year with good momentum across our businesses. We will continue to focus on driving forward our strategic initiatives and delivering for our shareholders. With that, I will hand it back over to Bruce.

Okay. Aunoy, thank you. Operator, let's open it up for Q&A.

[Operator Instructions] And our first question comes from the line of Ryan Nash from Goldman Sachs.

First, just congrats to Brendan on the expanded responsibilities. And Bruce, I hope you are still celebrating the NEXT victory like I am.

Very enjoyable. It's got a lasting taste to it.

You are telling me. Maybe to kick it off, so deposit costs were up 4 bps in the quarter, and you highlighted that a portion was driven by the Private Bank given an influx of growth. So can you maybe just talk about your deposit cost expectations from here relative to the high 40s beta that you've been targeting? And what does all this mean for the trajectory of your margin and maybe where you're tracking relative to both year-end and the long-term ranges? And I have a follow-up.

Yes, sure. I would say the kind of deposit cost number and deposit growth is going to move around a little bit from quarter-to-quarter. There's going to be seasonal factors typically. Our strong quarter is Q4, particularly in commercial when we get a significant amount of deposit growth. If you look at the kind of year-over-year spot deposit growth is up 6%. And in the second quarter, it tends to be a little lighter. And I'd say there was a bit more loan growth than people expected coming into the quarter, which might have caused deposit competition to increase a little bit. I think that likely just evens out. I don't think it's a trend that we're all that concerned about, and we'd still kind of hold our view that the deposit betas will be likely to be stable from here. It could be that the cycle ends if the Fed goes to a hike. But at this point, I think we'll be on hold for a reasonable period of time. So in any case, I think we're managing that impact. We're still showing positive NIM progression. We do have time-based benefits that really helps kind of distinguish us versus others when we look out to the second half of the year. I think we have confidence in the outlook around DDA and low-cost deposit growth even accelerating a bit in the second half of the year. So we feel taking all things into account, we're not that concerned about a slight uptick in the deposit cost for Q2. Aunoy, do you want to add anything to that?

Yes. Ryan, it's Aunoy here. I would I say if you look at for the second half, as you saw in the first half, we did almost 10 basis points of NIM expansion. And in the second half, if you look at on Page 18, we've got 7 basis point of terminated swap impact and a couple of basis points of front book, back book, so we have got 9 basis points. That's a nice increase, and that could see you at the higher end of our 4Q range. And as Bruce said, we have good line of sight on good DDA growth, and we continue to rotate loans into higher earning assets. So we feel good about where we are. And also we have a very disciplined hedging program, and we continue to hedge our -- any downside risk. So we feel good about our NIM ranges from here.

Got it. No, that's great. And maybe just to build on that, 2 quick follow-ups. The slides referenced you thought you'd be above the high end of the 10% to 12% guide. Maybe -- can you put a finer point on that? And given the strength in NII growth, do you think you can -- and further margin expansion, do you think you can maintain these type of NII growth rates at least through '27?

Yes. We don't usually give specific guides on the full year outlook, just a kind of broad update. I think if you look at where consensus is and what we just posted in the second quarter plus the third quarter guidance, we would tend to move past consensus. So we'd be higher than where consensus is, which is already, I think, at 12.2% or 12.3% or something like that. So other than that, there's a lot to play out. So I don't want to be too specific on it other than we feel good about the trajectory for NII coming from both NIM expansion and loan growth continuing into the second half of the year. We also feel good about the fee trajectory as well, where we think will come at the high end of the range there as well. And then with respect to '27, I think it's a little early to call that. We'll give you, obviously, the full guidance in January. But at this point, objects in motion tend to stay in motion. We think the economic backdrop is going to be supportive for '27. So we should continue to see reasonable levels of loan growth. And then we just talked about the slide about the drivers that will continue to allow us to expand the net interest margin.

The only thing, Ryan, that I would add also is we also delivered 600 basis points of operating leverage, and you saw our ROTCE tick up to 13.9% this quarter. We expect the ROTCE just keep ticking up as we go through the year.

Next, we'll go to the line of Erika Najarian from UBS.

I'm actually now going to reframe my question because it seems like you're keen on what consensus movements could be. So obviously, all good guys in terms of the NII upgrade and fees expenses slightly higher given strong revenue performance obviously, the operating leverage is widening from the 500 to the 600. So Bruce and Aunoy, as you think about what the expectations are on the street, do you expect a PPNR upgrade relative to what you're expecting. I think if we do back of the envelope math, if you'd go conclude anywhere from no upside to PPNR to 3% upside to PPNR.

Yes. I mean I think the guide is very solid. So we wouldn't be surprised to see PPNR move up a bit. And I would say on expenses specifically, I don't really have any concern nor do I think investors should have any concern at all that we're viewing the positive operating leverage is an opportunity to go double down and start spending a lot of money. The slight -- and I emphasize the word slight increase in expense is really just additional incentive compensation for paying our people for delivering significantly higher revenues than at the high end of the range or higher, things like that, you got to pay people. So if that number moves up slightly, that's a good thing. It's tied to revenue production and it was still resulting in an increase in positive operating leverage for the year relative to the beginning of your guide.

And my follow-up question. Thank you for that, Bruce, is Aunoy, you mentioned that you did take on more FHLB given the gap between loan growth and deposit growth. Maybe talk to us about sort of your strategy at the end of the year, you mentioned holding the line on deposit costs. And so are you -- what is sort of the math that you're doing as you're thinking about the FHLB [indiscernible] draws versus having a more attractive deposit rate. And is the timing of the fourth quarter strength sort of a consideration in terms of the maybe temporary FHLB strategy? And sorry for the compound question, but Ryan started it, so I might as well follow through. if we do get a rate hike, which is not contemplated in your guide, what do you expect your asset sensitivity generally and for deposit beta specifically?

Wow, there's a lot of questions you take into that one, Erika. So I'm going to just finish off a little bit since it related to the Ryan question. But again, I mentioned there's kind of seasonal patterns in deposit growth. And so we borrowed a bit of money in the second quarter in FHLB. I think that ultimately drops out or drops to lower levels as we get into the second half of the year, and we would expect to see more robust deposit growth, particularly in Q4. So anyway, just to that specific question, that's how we see it. And we're still at very, very modest levels of FHLB advances. We're almost entirely and we have been for several quarters, entirely deposit-funded, which I think is a real strong suit and shows our incredible liquidity and funding position relative to our peers. But Anyway, I'll turn it back over to Aunoy.

Yes. I think, Erika, just to add to Bruce's point, I think we are seeing some good deposit trends underlying our businesses. If you think about the Private Bank, it has grown nicely. And as you know, the Private Bank comes with almost 30% DDA and over 50% as a DDA plus CV. So that's a nice growth that we are seeing that is quite, quite unique to us in a good way. And then also in the consumer bank, we are seeing a good DDA growth. We are seeing good checking account growth. We are seeing checking balances per household growing our affluent and mass affluent segment. So we are seeing nice, nice deposit trajectory. And as Bruce mentioned, with the Commercial Bank coming in seasonally higher in the fourth quarter, we expect deposit growth to continue for here. To your point on asset sensitivity, look, I think we have always been slightly asset sensitive, and we continue to continue to do that, and we have hedged our downside risk as well, but we remain a little bit asset sensitive. So as rates go up, if they go up, it will be more of an impact in '27 as some of the hedges amortized. So it would be a good tailwind to have in the first half.

I would say on the slide where we show you that cone in the deck, Erika, the fact that the macro outlook seems pretty stable, and the rate outlook seems pretty stable for the next 18 months. I mean, you might see a hike or 2 up or eventually a cut -- 1 or 2. But not moving that far off of where it is. A lot of the kind of downside risk, in particular, if rates get cut a lot seems to be reduced. And so it basically means that the time-based fixed asset repricing and then our own balance sheet dynamics, how we're managing the low-cost growth, how we're rotating capital out of loan portfolios today into more attractive loan portfolios in the future. That helps determine that NIM trajectory more and more with less kind of a wildcard coming from the external rate environment.

Next, we'll go to the line of Matt O'Connor from Deutsche Bank.

Bruce, I was just hoping to ask about succession given some of the media articles out there that have been covering the topic of late.

Sure. So I have undertaken a kind of very considerate process to make sure that the -- the team that got us to this point, we've had a tremendous run, stocks up over 3x since the IPO. The bank has been transformed. Some of those folks on my team have hit retirement, and I brought 4 new folks on to ExCo last year, and we promoted Ted to run commercial and Don McCree retired. I think Brendan has demonstrated great leadership qualities, and we made him President last year and on a consistent basis, we're continuing to broaden his remit. So he sees more of the bank, and he can be tested, but also just gaining knowledge and I think he's doing a great job. And this new tuck-in commercial under is another chance to broaden kind of what he understands about the bank. So I'm in no rush to go anywhere. I feel lots of energy and really have a spring in my step every day when I come to work. But you have to go about these things. It's an important duty for the Board and for me to make sure that we have a team that can take us to the next forward for the next 5 or 10 years. And I think we're doing that in a very thoughtful way.

Okay. That's helpful. And then just separately, as we think about the private bank build-out, I guess, specifically next year, some of the markets that you're targeting, there's obviously been just a lot of price increases on inflation and as I think about the competitive backdrop for private bankers, that's, I think, probably increased quite a bit to as everyone is trying to lead them there. So is it getting harder to do some of these build-outs for kind of those reasons? Or is that kind of being balanced by the momentum that you've had, you kind of have talked about how a beginning is a little bit harder because you hadn't really done it before, but as you built a mute is kind of set on itself. So how do those 2 kind of shake out on a net basis?

It's Brendan. We just crashed the 3-year anniversary of the Private Bank. So I guess I would start by saying incredibly pleased with where we're at with the foundation that we've built. And as the quarters have gone on, our confidence around us having a winning formula has improved remarkably. You see sort of the steady and very significant quarter-on-quarter growth married with the very strong profitability that has held in there. Every quarter, we still are maintaining the deposit quality of the book, even despite the growth, and you're starting to see loan growth pick up and the attraction of new talent and teams has not slowed. As I've mentioned in past calls, the first maybe 2 years, we were held back intentionally on going really fast on growth to make sure we can demonstrate to ourselves that we can build this model and do it effectively and deliver effectively for our clients while maintaining a profitability profile that's accretive. We feel really good about that now. And so we are in the mode of expansion. As Aunoy mentioned, we opened 10 PBOs. We're projecting that to be in the 15%, 16% range by the end of 2027. So we will continue to open and densify in the markets that we're already in. And yes, we're looking and thinking about where else we can bring this model. And I think look no further than some of our core legacy Citizens markets where we have incredible retail and commercial presence and we want to round out the 3 legs of the stool in great markets that we already are operating in with great brand to connect our One Citizens model altogether. So we will be looking further expansion. We, in particular, are interested in continuing to bring on top quality Wealth teams. We expect the pace of growth to broadly be consistent with where it is today. And that's what I think you can expect over the near-term and medium-term outlook. We're still going to do it in an incredibly disciplined and paced way as well. We've got to continue to validate that we've got this right. But the opportunity is still very much right in front of us. We believe the white space is still wide open, clients continue to give us that feedback that we've got a competitive edge and so we're going to continue to walk through that door.

I would just add to, Matt, that we're excited about the expanding PBO presence that we now have 10 up and running. We have 7 or so planned for next year. We've done a very thick build out in California, which you would expect given that was the NEXT's first republic's operations. But we see Florida as an area for growth that we'd like to keep investing there to get it caught up and scale somewhat to where California is. And then the Northeast, we have some satellite opportunities around New York, around Boston to kind of thicken in those regions. And then I think Philadelphia would be another location that would be on our drawing board. So really excited about kind of the pace and some of the things that are on the drawing board that will help continue and sustain our momentum. We have another question?

Yes. Our next question comes from John Pancari from Evercore ISI.

Just on the -- on your medium-term targets. I know you reiterated your 16% to 18% ROTCE by end of year 2027. Can you just update us on what efficiency ratio is assumed underneath that. I know you had previously cited a mid-50s efficiency ratio, I think the last time you put that in your slides. Maybe it was fourth quarter or so. I know you're at 61% for this quarter. How should we think about where that needs to head to in order to support the 16% to 18% ROTCE?

Yes. John, it's Aunoy here. Look, on the 16% to 18% draw see quite a good trajectory from here onwards. As you saw we delivered 13.9% ROTCE this quarter, up from the 12.2%. And to your point, efficiency ratio keeps coming down, and it's at 61%. So as we go through this year as well as through the quarters of next year, you will see that our efficiency ratio keeps coming down. And it would be probably in the mid-50s range. It's like we just update our -- the full medium-term guidance at the end of the fourth quarter when we look at the full year itself. So that's how we would look at.

So mid-50s is still the target, John. And just the walk itself gets clearer and clearer as you -- we were counting on a lot of time-based benefit to flow through and to ultimately get us close to the bottom end of the range before we had our own business performance kick in. And so, call it, 14% today, there's roughly another kind of, call it, 2% from time-based plus fixed asset repricing, which kind of gets you to 16% on its own. You have the business performance, which could be another $150 million to $200 million. You have credit improvement, which can be kind of a smidge higher, and then you have kind of reducing AOCI, which grows the equity base, which you'll still be repurchasing some shares, but that's about a 1% or so negative. So just that alone gets you to the midpoint roughly of the 16% to 18%. And then you haven't even factored in the benefits from RTB at that point. So anyway, just to kind of pull that walk forward, it's still very consistent, but we've already realized some of the big time-based benefits in pulling us up from kind of the 11%, high 11s up to where we are today at 14%.

Okay. Great. And then just separately, you've already commented a bit on what you're seeing around deposit pricing. What are you seeing around the lending side in terms of loan spreads. Maybe if you can give us a little bit of color by business? And maybe what are some of the new money loan yield that you're seeing either in commercial then also in the Private Bank just as you've been growing their book steadily. What type of new money yields are you seeing there?

Do you want to go first, Aunoy.

Yes, I think, John, it's Aunoy here. Look, I think we had -- we are very pleased with our loan performance this quarter. I think if you think about loan growth was up around 3%, $3.8 billion, and it came across all the businesses. So Private Bank grew nicely. There was growth in resi, mortgage and the utilization of our the commercial book there as well as the multifamily CRE group. And then on the commercial side, again, a very, very diverse growth set. So whether we have our sectors that we go in mid-corporate, we got new clients, new money and we also saw utilization going up. our clients are actually quite bullish about the economic environment and put money to work. We also saw sponsor utilization go up. So we are very pleased with many of the commercial line the utilization that's there. And on the retail side, we also saw HELOC going up nicely. So obviously, on spreads, pricing is tight. There's a lot of demand, but there's also a lot of money but we are very disciplined. We look at our overall relationship-based view against the balance sheet that we lend out but spreads remained probably stable from last quarter.

Yes, I'm going to go to Ted. You can talk about Commercial. And then, Brendan, maybe a little more color on Consumer and Private Banks.

Yes. Just adding to what you said, no, we are seeing -- I'd say in the second quarter, we saw a stable spread. And with the increase in loan issuance out there, we did not see the incredible pricing pressure as we had seen earlier last year and early in the first quarter. So in the NDFI, pricing has kind of leveled off where we had seen more pressure on that earlier on the corporate side of the business, maybe a little more pressure, but relatively stable to where we've been. And as we enter into the third quarter, we have not seen increased pressure on this. I think banks with the increased amount of loans that have been out there have been able to be a little bit more choosy and not had the pressure on spreads that we've had in prior quarters. So I'll pass it over to you, Brendan to talk about Consumer.

Yes, sure. Starting on Private Bank, quickly, similar story, very stable spreads. Our yields on the loan book is just north of 6% and the deposit cost is about 2.10% all in. So you're getting at a net loan over deposit spread of just under 4%, which has been really consistent for the past bunch of quarters. So -- obviously, in the short term, that's very accretive to NII when you look at the net contribution from the private bank. The loan book is about 1/3, 1/3, 1/3 residential commercial real estate, multifamily, granular tied to high net worth individuals and then business banking and C&I. So no new news there, strong spreads accelerating originations and accelerating deposit growth, no deterioration in quality or margin. On the retail side, we've been posting year-over-year growth around the 3% range the last few quarters, led by HELOC and mortgage with now some modest tick up in credit card given our new product investments. The yields are also in the low 6s, 6.15% or so as compared to a deposit cost in consumer in the 1.30%. So really healthy margin on the consumer bank. The HELOC yields are north of 7%. So the place we're getting the most growth is obviously a variable rate asset with very healthy yields. So we're able to take #1 in United States market share in the asset class with a very low risk profile and very significant outsized yields in that space. We've got a very large competitive advantage there. We're going to keep that going. We don't see that slowing anytime soon.

Next, we'll go to the line of Ken Usdin from Autonomous Research.

Just on the fee side, I heard your comments in the guide that you could be at the -- towards the high end of the fee guide for the year. But I want to know, specifically, this is a really good capital markets quarter. And I'm just wondering like where you think that is in terms of the potential of the business? Obviously, it's a great environment, and it certainly reflected that. But could that be the source of potentially some more juice? And I guess what other drivers would you expect if you end up doing better than that high end?

Well, let me start and flip it to Ted. I'll keep the bar high for Ted. But in any case, Ken, if you look at trailing 12-month revenue for cap markets, it's $595 million, so call it $600 million. And I think there's -- we've built out a lot. I mean we once had a high watermark quarter back in the fourth quarter of '21, which I think was $181 million, which annualizes to a number. If you could -- if you could replicate that, you'd be over $700 million. But since that time, that was like a perfect storm to the upside of everything trying to get done in a very narrow window in that fourth quarter. But if you look at kind of what we've continued to do is we've kind of built out industry verticals with really corporate finance expertise and M&A expertise. We've continued to grow the relationships with private credit. We've bought more boutiques. DH Capital gives us a great advisory group in the digital and data infrastructure space. We just bought another boutique Matrix Capital Partners. So we have continued to build out capabilities. We continue to add talent. One of the things I'm really pleased about is there's lots of folks that are great bankers who are getting tired of the places they're operating, whether it's politics or change in direction and people are beating a path to our door to get on our platform, which is an enviable position to be in. So I think there's clearly continued upside to that number, how much is probably partly on our own execution, but also the market backdrop. But from where we sit today, the deal pipelines are very strong, and this could be kind of a secular multiyear trend that we'd be very well positioned and poised to capture that revenue upside probably better than most of our peers in my view. But Ted, with that, over to you.

Yes. And thanks, Bruce, and I agree with everything you said. We built a really, really good engine in our capital markets business. We feel like we have all of the products that we want covered now between what we've always had, which is DCM on the bank and bond side, adding the equities with JMP back 5 years ago. And then the number of boutiques that Bruce described with Matrix being the most recent one that we purchased earlier this year. I would say after all that, I don't still feel like we've seen the perfect deal market that would accentuate all of the efforts that we put into building this. We had a record second quarter this year in DCM, almost our best quarter ever. And I still feel like we did most of those from refinancing transactions versus new underwrites where we generally make more money on those deals. As we look at our M&A business, we've had 2 good quarters as compared to last year. But as we see our pipelines, we feel like there's real upside. If the markets remain as strong as they are right now, we are continuing to win, I think, better and much more complex transactions than we had in the past. So with the same people, we think we can produce more. And as Bruce said, we're seeing a lot of opportunities to bring talent in from other places if we so choose, given changes in strategy that other banks have made and then what people feel like they can accomplish on our platform. So we feel opportunistic that if we get into even a better M&A and leveraged underwriting market than we've had before, there's still upside. As far as our equities business goes, there's been great combinations now reached between the existing JMP platform and the existing Citizens platform, we're just beginning to see the benefits of that in the REIT space, in the FIG space where we feel like we can make more money on the equity side than we've made in the past. So again, Bruce has put a pretty high bar out there. I'm not going to commit to that. But I do feel like I do feel like we still have our better days to come on this market as long as the market stays and the geopolitical environment stays relatively calm. Thanks for the question.

Next, we'll go to the line of David Chiaverini from Jefferies.

You mentioned about how the Private Bank net interest spread is 4% very strong. Curious about how sustainable this could be as the build-out matures.