Citizens Financial Group Inc ($CFG) Q2 2026 Earnings Call

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. Currently all participants are in a listen-only mode. Following the presentation, we will conduct a brief question and answer session. As a reminder, this event is being recorded. I will now turn the call over to Kristen Silverberg, head of investor relations. Kristen, 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 Anoi 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, 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 three and four, we delivered EPS of $1.30 for the second quarter, a 17 cent or 15% improvement over the first quarter. And we saw solid improvement in RoCE 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 three 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 buildout of our private bank and our re-imagine the bank program, which is progressing well. As Bruce said, the private bank delivered another standout performance, contributing 15 cents, up 4 cents from the prior quarter, representing 11.5% of total EPS. We opened our 10th 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 five, 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 three 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 non-core runoff contributed six basis points this quarter and fixed rate asset repricing added another basis point. Funding costs ticked up slightly as loan demands strengthened through the quarter across each of the three 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 four basis points and total deposit costs were up three 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 continues to hold rates steady. Moving to slide six. Non-interest 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. Loan syndications 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 bookrunner 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 seven, expenses were managed tightly, up about 1% linked quarter, and we improved our efficiency ratio to 61%. Second quarter results include implementation cost of about 7 million for the reimagine the bank program. Moving to loans on slide eight, 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. Excluding the private bank, commercial loans were up 1.5 billion or 2% linked quarter. The commercial growth was driven by CNI 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 CRA primarily driven by multifamily and general office paydowns. Importantly, the CNI 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, healthcare, 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 CRA paydowns push into Q3. Growth in retail loans excluding noncore on a spot basis was about 800 million led by real estate secured categories. This was partially offset by the non-core auto portfolio runoff of roughly 400 million for the quarter. Next on slides 9 and 10, we continued 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 non-interest-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 non-core 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 non-core runoff, the reduction in the commercial real estate and strong originations of lower loss content CNI, 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 maintain 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 cost. Client assets increased by about 1 billion to end the quarter with 11.2 billion of total client assets. We added another strong wealth 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 reimagine 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 and as we realize quick wins to cover implementation costs. We expect to exit 2026 with about 100 million of annualized pre-tax 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 for 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 standalone 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% RoCE target. Moving to slide 17, we provide our outlook for the third quarter which contemplates the Fed holding rate 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. Non-interest 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% RoCE target by the end of 27. We continue to improve our net interest margin adding 10 basis points in the first half of 26 and we project to deliver a 4Q26 NIM in the range of 322 to 327 basis points and in the range of 330 to 350 basis points in 4Q27. 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 RoCE to the target range of 16 to 18%. To wrap up, we delivered a strong second quarter result 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.

Thank you, Mr. Van Saun. We are now ready for the question and answer portion of the call. At this time, if you would like to ask a question, please unmute your phone, press star one and record your name clearly when prompted. If you need to withdraw your question at any time, you may press star two. Again, that is star one to ask a question and the first question comes from the line of Ryan Nash from Goldman Sachs. Please go ahead.

Morning everyone.

Uh, first just congrats to Brendan on the expanded responsibilities and, Bruce, I hope you are still celebrating the Knicks victory like I am.

You are telling me. Maybe to kick it off, you know, so deposit costs were up four bips 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? Thank you. And have a follow-up.

Yeah, I would say if you look at 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 page 18, we've got seven basis points of terminated swap impact and a couple of basis points of front book back, so we have got nine basis points that's a nice increase and that puts 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 downside risk. So we feel good about our NIM ranges from here.

Got it. That's great. And maybe just to build on that, two quick follow-ups. The slides reference 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 and further margin expansion, do you think you can maintain these type of NII growth rates at least through 27? Thank you.

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

Next we'll go to the line of Erica Narian from UBS. Please go ahead.

Hi. Good morning. 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 Anoi, do you know if 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, you could conclude anywhere from no upside to PPNR to 3% upside to PPNR.

And my follow-up question, thank you for that Bruce, is you know, Anoi, you mentioned that you did take on more FHLB given the gap between loan growth and deposit growth. Maybe talk to us about your strategy at the end of the year. You mentioned holding the line on deposit costs. So what is the math that you're doing as you're thinking about the FHLB advances versus having a more attractive deposit rate? And is the timing of the fourth quarter strength 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 for your asset sensitivity generally and for deposit beta specifically?

Yeah, I think Erica, 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 DDA plus CV. So that's a nice growth that we are seeing that is quite unique to us in a good way. And then also in the consumer bank we are seeing good DDA growth, good checking account growth, checking balances per household grow in our affluent and mass affluent segment. So we are seeing 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 from here. To your point on asset sensitivity, look, we are as we have always been slightly asset sensitive and we 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 are amortized and it would be a good tailwind to have in the front.

Thank you.

Next, we'll go to the line of Matt Okconor from Deutsche Bank. Please go ahead.

Good morning. 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.

Okay, that's helpful. And then just separately as we think about the private bank buildout, specifically next year, some of the markets that you're targeting, there's obviously been a lot of price increases on inflation. And as I think about the competitive backdrop for private bankers, that's probably increased quite a bit too as everyone's trying to lean in there. So is it getting harder to do some of these buildouts for those reasons or is that being balanced by the momentum you've had? You've talked about how the beginning was a little bit harder because you hadn't really done it before, but as you built momentum, it's kind of set on itself. So, how did those two kind of shake out on a net basis? Thanks.

Hey, it's Brendan. We just crossed the three-year anniversary of the private bank. So I guess I would start by saying I'm 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 the steady and very significant 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 two years, we were held back intentionally on going really fast on growth to make sure we could demonstrate to ourselves that we could build this model and do it effectively and deliver effectively for our clients while maintaining a profitability profile that is accretive. We feel really good about that now. And so we are in the mode of expansion. As Anoi 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. 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 three legs of the stool in great markets that we already are operating in with great brand to connect our one Citizens model together. So we will be looking further at 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.

We have another question. Yes. Our next question comes from John Pancy from Evercore ISI.

Morning.

Hi. Morning. Just on your medium-term targets, I know you reiterated your 16 to 18% RoCE 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% RoCE? Thanks.

Yeah. Hi John, it's Anoi. Look at on the 16 to 18% RoCE, we see quite a good trajectory from here onwards. As you saw, we delivered 13.9% RoCE 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 our efficiency ratio keeps coming down and it would be probably in the mid-50s range. It's like we just update our full medium-term guidance at the end of the fourth quarter when we look at the full year. So that's how we would look at it.

Okay, great. Thanks for the detail there. And then just separately, I believe 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 yields that you're seeing either in commercial and then also in the private bank just as you've been growing that book steadily. What type of new money yields are you seeing there? Thanks.

Yeah. Do you want to go first? Yeah, I think John and I are here. Look, I think we were very pleased with our loan performance this quarter. 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, in the utilization of the commercial book, as well as the multifamily CRE group. And then on the commercial side, a very diverse growth set. So whether we have our sectors in mid-corporate, we got new clients, new money in, we also saw utilization going up. So our clients are actually quite bullish about the economic environment and putting money to work. We also saw sponsor utilization go up. So we were very pleased with many of the commercial line utilization that's there. And on the retail side, we also saw HELOC going up nicely. So obviously on spreads, look, 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 remain probably stable from last quarter.

Thanks. Yeah, just adding to what you said, Anoi, we are seeing in the second quarter we saw stable spreads and with the increase in loan issuance out there, we did not see the incredible pricing pressure as we had

Yeah, sure. Starting on a private bank quickly, we similar story, very stable spreads, our yields on the loan book is just north of 6% and the deposit cost is, you know, about 210 all in. So, you're getting 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 a third, a third, a third - residential, commercial real estate multifamily granular tied to high net worth individuals, and then, you know, business banking and CNI. So, no new news there, strong spreads, accelerating originations and accelerating deposit growth. No deterioration in quality or margin. In the retail side, we've been posting year-over-year growth around the 3% range for 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 there are also in the low sixes, 615 or so, as compared to a deposit cost in consumer in the 130s. So really healthy margin on the consumer bank. The HELOC yields are north of 7%. So the place where we're getting the most growth is a variable rate asset with very healthy yield. So we're able to take number one in United States market share in the asset class with, you know, 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 Yusen from Autonomous Research. Please go ahead.

Thanks. Good morning. Just on the fee side, you heard your comments and the guide that you could be at 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 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 could do better than that high end? Thanks a lot.

Yeah, 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 the products that we want covered now between what we've always had, which is DCM on the bank and bond side, adding equities with JMP back five 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 the efforts 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 two 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 could 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 of strategies other banks have made and 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 reach space and 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 we still have our better days to come in this market as long as the market stays and the geopolitical environment stays relatively calm.

Next we'll go to the line of David Chverini from Jeff. Please go ahead.

Hi, thanks for taking the questions. You mentioned about how the private bank net interest spread is 4% very strong. Curious about how sustainable this could be as the buildout matures.

Great to hear. And then it was good to see the stress capital buffer improving to the 2 and a half% minimum. Does this change the way you manage the business at all?

Very helpful. Thank you.

Next, we'll go to the line of Gerard Cassidy from RBC Capital Markets. Please go ahead.

Hi, Bruce. Hi, Anoi. You said in your prepared remarks, you gave us some color about the growth in the commercial loan portfolio areas like technology, healthcare, energy, FIG sectors. You also mentioned about the private credit funds are actively utilizing your facilities. Can you share with us more about that? You know, where are you seeing that growth and within the private credit funds? And then as a second part to the question, you also mentioned about the commercial real estate paydowns. Do you expect that to bottom sometime this year and we could actually see commercial real estate mortgage growth for Citizens possibly going into 27?

So on the fund financing, Gerard, look, we've had this strategy for years. And we've been migrating our fund finance strategy from a participant role to a left lead role. We've been building this pipeline for years now. And in the second quarter, we actually closed on a number of transactions that increased our exposure by I think approximately $800 million on fund finance. Those were all left lead transactions. And were part of the strategy that we had put in place. We continue to this outstanding business continue to be stratified much similarly the way they had been in the past. We don't see a pickup in any one sector. We still feel very, very good about the underlying credits in those areas. We've seen really no deterioration in any way, shape or form from the underlying assets. So we continue to find it a very good asset class to be in. We saw a more temporary increase, I think more episodic on our subscription line finance business. I think we were up approximately $600 million in that business over the second quarter. I think that those outstandings I would expect to get repaid over in the short order as the equity comes in and takes out the loans in those businesses in those deals. But on the fund finance side, we had a really good quarter. We've had a really good track record. We feel very good about what we're doing on that side of the business. So on the CRE side, we thought we were going to be coming down quicker in that than we did. We had a couple of payoffs that we expected to get done in the second quarter that got pushed out into the third quarter. We're going to continue to wind down, not wind down, but continue to be very selective on the office real portfolio. So I don't know that we'll see that bottom out in the near future on the repayment side. We are though looking continuing to look at digital infrastructure as an opportunity to put some capital to work in the real estate side and on the REIT side of the business where we see good opportunities and we can cross-sell with both our equity business and our bond and bank business will continue to look at those selectively. So office will probably continue to go down and maybe somewhat offset by some stuff in digital infrastructure and reach. Yeah.

Very good. And then, coming back to Ted, you commented about the M&A business. Have had two good quarters compared to last year. You see the pipelines, the deal logic data showing record levels of M&A activity. Of course, it's the very large deals with the very large investment banks. What do you think, when you look at your prime customer in this space? What is it going to take for more deal activity to really kick in? Because the smaller deals just haven't really gained the momentum like some of these really large mega M&A deals that we've seen in the past 6 to 12 months.

Yeah, it's a fair point, Gerard. What our pipelines would tell us is that these middle market customers are ready to get off the sidelines. If you looked at the last two Marches where we've had a lot of volatility, we got off to a good start in 25, expected to have a good pipeline and then it got delayed with all the concerns around tariffs and things of that nature, which made selling a company a little bit more challenging. Same things happened at the start of 26, but as we look at our pipelines, we're seeing a fair amount of customers in the middle market getting ready to sell. As we talked to our financial sponsors, they are seeing levels of books coming in that they have not seen in the last five years. So it feels like that trend is beginning to pick up and my expectation is into the fourth quarter into next year you'll start seeing those M&A transactions start to occur. So it feels like with some stability, we should have a good answer to that question toward the end of this year.

Great. I appreciate it, Ted. Thank you. Oh, go ahead, Bruce. Sorry.

Next, we'll go to the line of Brian Fran from Truist. Please go ahead.

Hey. Actually I have a little bit of a follow-up on that last question but maybe more by industry and this kind of overall market debate about narrow economic strength versus broadening across sectors. I guess just to set the stage for a while, there's been this concern that the business economy is doing well but the drivers by industry are fairly concentrated. And I'm looking at your slide 24 which is always great and gives a lot more detail than most of your peers and if I'm mapping it right, it kind of shows that because you've got seven sectors that are flat or down year-over-year, four that are up single digits and seven that are up double digits in the CNI categories you give. So I guess the question is do you feel like as you look at your pipelines, as you talk to your customers, are we still on this kind of narrow concentrated growth path or do you feel like you know it's not just AI, it's not just everything related to it, we're really starting to see this broadening theme play out on the ground.

It's a really good question. I would say first we are starting to see it start to widen out. AI was clearly in a lot in the news and the businesses that surround AI like digital infrastructure and the thought that goes into digital infrastructure has been a big piece of our first and second quarter. But as we look at our pipeline, it's not just digital infrastructure. We're seeing a lot of stuff within the industrial industry, industrial subsectors start to pick up with things that don't necessarily go into digital infrastructure, which is great. We're seeing some stuff in healthcare. We've seen a pickup in biotech. And then the only place we really haven't seen a big pickup yet is on the consumer side of the business, but our pipelines look pretty diversified as we look out over the next 6 to 9 months from what we can see. That was different than what we saw in the first and second quarter. And as Gerard picked up on earlier, a lot of the deals were very large transactions. We're getting much more granular in the middle market, which by definition is more granular, is starting to show some real signs of life. And therefore, I expect we will continue to see more granularity in the industries that pick up over the foreseeable future.

Thank you. That was all I had.

Thanks.

Next, we'll go to the line of Manangoia from Morgan Stanley. Please go ahead.

Hey, good morning. Bruce, can you unpack that comment on this CET1 range a little bit? I think you said you're still targeting that 10 to 10 and a half% range, but you think you can move down from the 10 and a half% number over time. I guess what do you need to see to get to the lower end of that range? And, you know, is it finalization of Basel Endgame? Is it the 2027 stress test? Just trying to assess the trajectory of the capital ratio here.

That's great context. Maybe just on the next program, you mentioned the financial impact is a benefit to the medium-term and doesn't impact the 16 to 18% ROTCE target. Can you just expand on that a little bit? Is there any near-term expenses or anything else we should be thinking about? And how are you thinking about the revenue impact of that?

A few quick points. Just grounding on where we're at today. If you looked at our branch network when we took the bank public and then added Investors and HSBC to that, we would have had about 1,400 branches. And today we have kind of call it a thousand. We now have one of the more profitable and effective branch networks in the country where if you look at revenue to expense ratios, we're at 5 to 6:1. The industry is at 3 to 4:1. So we've got a really profitable and efficient network. If you look out five to seven years, we actually don't imagine our branch count to net change by a tremendous amount. It should be sort of in that range of plus or minus a thousand branches. And when you unpack the various different things that we're doing to accelerate long-term outsized retail deposit growth, our legacy markets ex-New York, really, this is about repositioning them for strength and even further growth. But it actually could mean slightly less branches because we have this glut of in-store branches that we could thin over time and replace with even more powerful branches that you get sort of a two-for-one trade in terms of the strength and it better positions us for our target segments of mass affluent and affluent customers which gear better to where the profitability of the retail business is over time where you can get more wallet share really where our strengths are home equity wealth so on and so forth. So there'll be some self-funding dynamics in our legacy markets that allow us to selectively and organically slowly plant some de novos and densify some of our other markets that we're a little thin in. So the combination of those factors should drive a more powerful network more equipped for the target customers we're going at with a number of self-funding mechanisms and then to Bruce's point, where we're adding people they're high quality advisory folks, wealth private client bankers, business bankers, those have really quick paybacks where you're going to see the revenue growth coming soon and that's something we've validated over a long period of time.

Thank you. Really appreciate all the detail.

Next we'll go to Dave Rochester from Caner Fitzgerald. Please go ahead.

Hey, good morning guys. Solid quarter. I wanted to go back to the private bank. You've seen some really good momentum in that segment. It continues to exceed growth expectations. I was wondering as you look out to next year, assuming your PBO buildouts are on time, you're able to source the good people that you want to those offices. Do you think if this higher growth trajectory continues, there's a better chance you're going to land closer to the upper end of that 16 to 18% ROTCE target by the end of the year or 27 rather? Are you thinking that upper half of the range maybe is more reasonable at this point?

Okay, fair enough. And then Bruce you mentioned earlier Florida is maybe the next market you selected for greater density. How would you compare the potential value out of that market fully built out with all the PBOs you plan versus the California market where you already have a lot of density and have a sense for the value you're expecting there? How meaningful could Florida be for you and what's the timeline for getting that density you want up and running?

Yeah. Not a ton to add. It would be the exact same playbook in Florida that we're doing in California. We're one or two steps behind in terms of pace in Florida than we are in California. It is just as strategic as California, but it will probably ultimately be a little bit smaller in the private banking space at least in Florida than California long term. But you can imagine, right now our presence in private banking in Florida is centered right around Palm Beach and West Palm Beach. You can imagine over the five-year horizon that we're in, you know, five or six of the affluent communities in Central and Southern Florida. So, that's our aspiration. We're just getting situated in Palm Beach and we'll start to put in the same playbook that we did in California into Florida over the next couple of years.

Sounds good. All right. Thanks, guys.

Next, we'll go to the line of Chris McGrady from KBW. Please go ahead.

Great. Thanks for fitting me in. Bruce, on the private bank, you got kind of a medium term. Are you more optimistic about growing the loans or the deposits for this business? And I ask it because your loan to deposit ratio is roughly been around 50%. Anything magical about that number? Thanks.

Only thing I would add is if you think of it from a balance sheet strategy standpoint, the private bank right now is a net liquidity contributor to the top of the house. If you look at the lendability of the deposits, it's strong in between 60 and 70% and we're lending at 50%. So, as that tightens a little bit to Bruce's point and get into the LDR of 60 to 70%, I think that would be spot on the top of sort of a self-funding dynamic in the private bank where it's not drawing down liquidity from retail or anything else. It's still self-funding and I expect that to continue into the medium term.

Perfect. Thank you. And then more of a modeling question, the earning asset growth linked quarter Q1 to Q2, any reason that wouldn't be about the same for next quarter? Thanks.

Great. Thanks so much.

Thank you. And for our final question, we'll go to the line of Matthew Breeze from Stevens. Please go ahead.

Hey, good morning. Thanks for taking my questions. Just to follow up there, should we infer from your comments, particularly around the NII loan growth for the year will be above your 2026 guide and just curious to what extent. Bruce, I know you just discussed some offsets there, but I'm curious on the whole.

Yes, I would say if you think about it, we had some good loan growth this quarter and it was a pull forward as Bruce mentioned, but if you take the average of the loan growth that's what for the full year, I think we will probably slightly be ahead of what we had guided in January. I think spot loan growth will depend on how fourth quarter ends etc. But I would say on the average side we would be slightly ahead versus our January guide.

Got it. And then thinking about the margin longer term, Anoi, when you model it out how much longer might we see fixed asset repricing benefits to the NII? And I'm particularly focused on 2028 just given if you roll the clock back 5 years in 2023 we saw kind of loan yield spike for the industry but thinking we start to roll out of some of those in 2028. Curious if you see that in your model as well and what the impacts might be.

Yeah, if you look at it 27 as you put in the guide page, if you think of it we still go at a basis point or so in the quarter and it goes up and it obviously depends on the steepness of the curve. We generally what we see is roughly 3 to 5 billion dollars between securities and loans getting repriced in and it generally comes at a spread of 60 to 75 basis points. So I think that will continue in 27 in 28 as we go through it. Obviously some of those repricing starts to volume starts to come down but I would say it would still continue into 28 at reduced levels. So yeah.

I'll leave it there. Thank you for taking my questions.

Sure.

That concludes today's conference call. Thank you for your participation. And you may now disconnect.