Good morning, everyone and welcome to the Citizens Financial Group First Quarter 2022 Earnings Conference Call. My name is Tony and I will be your operator today. As a reminder, this event is being recorded. Now, I will turn the call over to Kristin Silberberg, Executive Vice President, Investor Relations. Kristin, you may begin.

Thank you, Tony. Good morning, everyone and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and CFO, John Woods, will provide an overview of our first quarter results. Brendan Coughlin, Head of Consumer Banking; and Don McCree, Head of Commercial Banking, are also here to provide additional color. We will be referencing our first quarter earnings presentation located on our Investor Relations website. After the presentation, we will be happy to take 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 on Page 2 of the presentation. We also referenced non-GAAP financial measures, so it’s important to review our GAAP results on Page 3 of the presentation and the reconciliations in the appendix. With that, I will hand over to you, Bruce.

Thanks, Kristin. Good morning, everyone and thanks for joining our call today. There clearly have been changes in the external environment relative to what was expected coming into the year, along with significant volatility. We feel we have executed well in this environment and are positioned to perform well over the course of 2022. Among the highlights of the quarter, we had a successful conversion of the HSBC branch and online customers, which was then followed by closing the Investors acquisition on April 6. We continue to take actions to position our balance sheet well for rising rates and we have made further progress on our strategic initiatives, including our digital agenda and TOP 7 program. With respect to our financial results, we are off to a good start with underlying EPS of $1.07 and ROTCE of 13%. This is generally our softest quarter from a seasonal standpoint given fewer days in the quarter and the impact of payroll taxes on expenses. Net interest income was up 2% sequentially, given 3% average loan growth and higher NIM, which more than offset a sizable drag from lower PPP loan forgiveness revenue and day count. We saw lower revenue in capital markets and mortgage given the environment, though high volatility benefited our Global Markets hedging business. We maintained strong deal pipelines in capital markets and remain optimistic for a significant revenue pickup if markets stabilize. We managed expenses well in the quarter and turnover has normalized somewhat. Credit metrics are all excellent and so far both our consumer and corporate customers are navigating well through the current challenges. Our balance sheet remains in great shape with a CET1 ratio of 9.7%. We have the capacity to grow loans, pursue fee-based bolt-on acquisitions, raise our dividend in the second half of the year…

Great. Thanks, Bruce. Good morning, everyone. First, I will start with our headlines for the quarter. We have reported underlying net income of $476 million and EPS of $1.07. Our underlying ROTCE for the quarter was 13%, which includes the impact of a modest credit provision benefit. Net interest income was up 2% linked quarter, driven by strong loan growth and a 9 basis point improvement in margin. Period-end loan growth was up a solid 2% linked quarter. Our retail loans are up about 3%, while commercial loans are up 2% or 3% ex-PPP impacts. Average loans are up 3% linked quarter paced by commercial, up 3% or 4% ex-PPP and retail up 3%. Fees were down 16% linked quarter, driven primarily by lower capital markets fees off a record prior quarter given market volatility, seasonal impacts and some pull-forward of transactions into the fourth quarter. On a positive note, we had our best quarter ever in interest rate and commodities revenues as we help clients manage through the volatile environment. We remain disciplined on expenses, which were up 3% sequentially, excluding acquisitions, reflecting seasonal payroll tax impacts. Year-over-year expenses were up a modest 2% excluding acquisitions. We recorded an underlying credit provision benefit of $21 million, which reflects strong credit performance across the retail and commercial portfolios. The near-term macroeconomic outlook remains positive though we are monitoring whether Fed actions to slow inflation can do so while engineering a soft landing for the economy. The underlying credit benefit for the quarter excludes $24 million for the double count of Day 1 CECL provision expense tied to the HSBC transaction. Our ACL ratio stands at 1.43%, down slightly from 1.51% at the end of 2021 and the 1.47% Day 1 CECL level. Our tangible book value per share was down…

Okay. Thank you, John. Operator, let’s open it up for some Q&A.

Thank you. Your first question comes from the line of Scott Siefers with Piper Sandler. Your line is now open.

Good morning, guys. Thank you for taking the question. I was hoping maybe you could spend just a moment discussing sort of the magnitude of recovery you are assuming in the capital markets environment in the forward guide. It looks like you assume some recovery in the second quarter, but of course, moderated the full year target a bit. Just curious for some thoughts or color on how you see things trajecting from here?

Yes. I will go ahead and start off on that. I mean I think you had number of impacts there that we are building into the guide. I’d say that we mentioned our $100 million guide over guide, which is driven primarily by mortgage. But there is some capital markets implications there as well given the fact that 1Q, we had some pull forward into the fourth quarter. If you look back at the fourth quarter, we had a record quarter, but our pipelines look excellent. And so there could be a little bit of time to build that back into delivering in the last three quarters of the year. But as markets stabilize, we really think that the momentum there is strong. And so maybe Don can cover.

Yes, I think it’s a tale of a couple of different cities. So, one thing we are seeing is quite a bit of strength in the loan market, the syndicated loan market. So, while the bond market is particularly high yield and the equity markets have been pretty much close for the last few months, we are seeing some rotation into the syndicated loan markets as the liquidity there kind of rebuild and you have seen quite a dramatic rally in the loan markets over the last couple of days actually. And that’s been quite supportive. So, I think the second quarter will be really a story about syndicated lending. And then if we get a reduction in volatility, we think we are going to begin to see the bond markets reopen a little bit and the equity markets reopen. I will say what John said, which is our pitch activity, our pipelines and our mandates are extremely strong. And so, it’s really a matter of waiting for the constructive in the markets to return and then we will begin to bring deals. And we saw three or four deals start to emerge last week, which we were on and we feel pretty good about, particularly in the back half of the year.

The other thing you didn’t mention is the M&A pipeline, which I think still looks really, really good. And again there, if the market stabilized a little bit, I think we will start to pull those deals through and it’s typically seasonal that the fourth quarter is huge, which it was for us in 2021. And then the first quarter is usually softer seasonally, pipelines look good. And I think as the year goes, we should see a nice build in M&A revenue.

Yes. I will also just amplify that, Bruce, to say a lot of our capital markets and M&A activity surrounds private equity. So, private equity is still flushed with cash and they actually are looking at quite interesting valuations in the market right now. So, it’s a matter of matching sellers kind of desires and buyers desires and that will just take a little time to kind of work through the system.

Yes, good.

Wonderful. That’s good color. Thank you. And then, John, was something you could talk just a bit about how your rate sensitivity changes as the cycle progresses meaning effectively, how do the first few rate hikes look in your mind versus the next several?

So did you say asset sensitivity or was it just – I missed the...

In other words, how much more powerful are the first few rate hikes than the next two?

Yes. I mean, I’d say that the – we mentioned our $20 million to $25 million per instantaneous 25 rate hike, and that’s really an average. So you get a little more on the front and maybe a little less as you get to the end of it. And that’s really driven by deposit betas, which are going to be extremely well controlled in the first 100. And then that starts to build into the second 100 and then beyond. So yes, I think you will see possibly a bit more on the front end. When we’re seeing those lag effect in deposit betas contribute a touch more and then it will be a little lower on the back end. I will mention is the other point that 20% to 25% is an average, but it’s also a first year average. And so there is actually more upside when you get into – even if it’s instantaneous, you still get a lag effect benefit from the asset side as well as assets reprice. So you might see, for example, in year 2, even for an instantaneous 25 basis point change, you would see upside from there in the 15% to 20% range on top of that as you get into rolling year 2.

Perfect. Alright, thank you very much.

Thank you. Your next question comes from the line of Erika Najarian with UBS. Your line is open.

Thank you so much for Slide 7. And I guess, John, maybe let me start my line of questioning here. So your current asset sensitivity from here is pro forma for Investors. I wanted to understand the comment that was made earlier about acceleration, right? So on one hand, we do expect deposit betas to accelerate as we are deeper into the rate cycle. But on the other hand, you have some drops on your portfolio today. Can you talk a bit about the interplay of both? And how should we think of this asset sensitivity as we move forward in the rate cycle? And does the swap portfolio give you a different trajectory for enhanced sensitivity later?

Yes. Thanks, Erika. I think if you’re on Page 7, I mean, I think that the drivers there are that we’re entering this cycle were much better positioned than the last cycle. When you think about just the starting point with interest-bearing deposit costs being at 10 basis points, an all-time low for us, we started the last cycle at 34 basis points. And the balance sheet position, the mix on the deposit side is much better with 32% noninterest-bearing. So we feel – just we’re much better prepared to benefit from rising rates this time around. We still benefited from rising rates last time around, by the way, but we’re much better prepared to benefit from this side around – this time around on deposit betas, given all of the strength on the balance sheet. I’d say when you ask about balance sheet, I mean, I think – and swaps, you really have to think about in the context of the entire balance sheet. So we do have a significant amount of asset sensitivity left to play out. That will decline over time as NII keeps rising, as I mentioned in my remarks, the denominator effect as we update and increase our NII, that alone reduces the percentage of further benefit that could occur for future rate hikes, just dollar for dollar, it’s fine, but the percentages fall. But I do think that there is significant firepower left, both with respect to the balance sheet loan growth part of the story as well as much more hedging left to do before asset sensitivity gets anywhere near neutral. So that’s how I would describe it. I mean in terms of deposit betas, again, 2022, you’re going to see a lot of lag, a lot of lag in the first 100. It will start to catch up maybe in the second 100. And then if we really do get to 300 basis points in Fed funds, you’ll see some of that catch up in 2023. And then I’ll just close out with our conversation about NII being up $290 million to $330 million guide over guide is an important thing to focus on, and that’s on a gradual rate rising scenario. It may be – it could be – it’s much higher in a full year effect when you get to 2023 approaching maybe 2x that.

And I would just add, Erika, that we’ve been I think, very keen to leave the asset sensitivity high and not do significant additional swaps we’ve done a bit. But anyway, we’re still, I think, of the view that rates could go even higher here. So feel good about how we’re positioned right now.

Got it. And the second question is for you, Bruce. The stock is having a good start to the day, but the valuation on tangible book value is underneath your ROTCE landing point for the year, either on a standalone or a pro forma basis. I guess what do you think in your estimation that the market doesn’t understand about the improvement that the bank has made since the IPO? And wondering, I think part of that is the asset sensitivity and deposits. Wondering if you could answer that question as the way – however way you want to, but also could you give us a sense of how much checking accounts you have, for example, on the consumer side versus previous? And maybe remind us why you have to keep what seems like a 50 to 100 basis point higher capital level than a lot of your regional peers?

Yes. There is a lot in that. I’ll try to unpack that, Erika. But I think partly the – our objective here is to continue to perform well through cycles. And so we’re a relatively new company with a relatively fresh management team. And so I think when the market goes into a risk thought posture, some assumptions how are they going to do, we’re not as – we don’t have the historical track record of some of our peers, I think. I think we’ve done a good job of dispelling some of those worry beads when we went through the pandemic, and our credit performance was very good. I think there was some concern for law that we’ve grown the balance sheet fairly quickly to get releveraged after the IPO and was that going to end in tiers. And we’ve said all along and we’ve been very disciplined in terms of where we were lending money and how we were allocating capital, and I think that’s borne fruit. I think now with an up cycle, at the beginning of the year when the environment looked like rates were going to go up gradually to use a Goldilocks example, that was the page was just right scenario. And so our stock performed quite well out of the chute. I think once it became clear that the Fed was behind the curve and was going to start to raise rates much more aggressively, I think then you kind of tipped into it, well, maybe the is too hot. And will our deposit betas go up too fast and curtail some of the benefit from higher rates. And I think, again, with all the work we’ve done and analysis we’ve provided, we’re quite confident that the liability side of this bank is…

I’m happy to give – Erika, you had asked about sort of the counts of checking account customers. Just kind of a couple of quick points, when you look at total relationships in the consumer bank, when we went public, we had about 2.9 million to 3 million customers. We now have over 7 million customers in total. Now some of those are loan customers. So when you unpack that to core deposit customers, that number is sort of we went from 2.9 million to 3.5 million customers. So that’s good growth, but that’s really not where the action is in the story versus sort of heading down this path really under the covers on that growth, which we’ve been in sort of top quartile growth of our peers has been a quality transformation. So there is been a dramatic overhaul in how many customers view us as their primary bank. And more than 100% of the growth in the household base has come from mass affluent and affluent customers. So when you combine the higher quality customer with deeper relationships, that’s what’s driving a lot of the improvement in DDA and non-interest-bearing deposits, which is very sustainable. That’s kind of ground game a lot of work over multiple quarters over a lot of years to get that to scale. And look, we still have some running room. I think there is still oxygen left in tank for us to continue to improve the quality of the customer base. We’ve made a lot of progress in catching up to peers, but we still have momentum. It does not seem to be slowing. I think you should expect more and more of that putting aside what happens with the excess stimulus deposits under the coverage, the quality story is still continuing and continuing at scale. The other point I’d make mention obviously you think about betas for this up cycle last time because of the low DDA balances that we had in consumer, we had about $10 billion in CDs. Now we start that period with only $3 billion. And so – when we look a lot more like a bigger sized bank in terms of deposit composition than we do smaller-sized bank where we’re not as rate sensitive in how we’re driving deposits because of that quality transformation that you see in the customer base.

Yes. And I’ll just emphasize, Bruce, what you said in terms of – we’ve gone through a complete reconstruction of our treasury service business. So it was frankly a basket case 6 years ago. And now I would put it up against any other company’s treasury service business, and that’s driving an above trend growth rate, 7% to 10% in terms of year-on-year growth and also driving a skew towards non-interest-bearing deposits. And we didn’t even have a deposit team 6 years ago. And now we have a built-out team, which has got fantastic analytics and bringing new offerings like green deposits in the ESG agenda and also building a liquidity portal. So, it’s a totally different place and we’re seeing the results in terms of deposit levels, and we’re seeing the skew towards non-interest-bearing also.

Yes. So we’re giving you a long-winded answer, Erika, but I wanted to just come back to the last thing you touched on which was ROTCE and also our capital targets. So I think we’re pleased that we can say that we will be solidly in the range for our medium-term targets this year, the 14% to 16%. And you can see that where we were in the first quarter, that should ramp, and so we could be even stronger, I think, as we exit the year. So feel very good about that. We did move the targets from 9.75 to 10 to 9.5 to 10. So we moved them modestly. I’m still a big believer in being somewhat conservative on the capital, particularly as, as I said, we’re a relatively new company. And so I think all our stakeholders from maybe being slightly higher than our peers. But if you look at it over time, we’ve been converging to peers. And honestly, when you look at the CCAR results and our risk profile, there is no reason that longer term we will need to have that premium.

Thank you for the complete answer.

Sure.

Thank you. Your next question comes from the line of Brian Foran of Autonomous. Your line is now open.

Hey, good morning. Maybe to follow-up on deposits, you have been very clear and convincing on the improvement in the book. So that’s appreciated and great information. As you think also about the ability to grow deposits over the next 2 years, I wonder – and there is a lot of moving parts. There is no one answer. But if you could just give your thoughts on the ability to grow deposits overall and maybe I’ll touch on consumer versus commercial and how that might behave as rates go up?

Yes. Great question, Brian. I appreciate it. I think that if you basically look at excellent opportunities for our deposits over time as our product lineup on both consumer and commercial have improved. And I think if you separate the expectation for – as rates rise, there is some impact on how those deposits play out. There is also the surge deposits that came in, in the pandemic that all appear to be a lot stickier than maybe a lot of us thought when they first showed up. I do think more broadly when you think about the macro, deposits have grown consistently over the last several decades under a number of different macroeconomic scenarios even through quantitative tightening and the like, the banking industry deposit growth seems to continue to chug along. So we’re optimistic that the industry as a whole and we, in particular, given our significantly expanded product capabilities, we will be able to continue to drive really strong deposit growth on both consumer and commercial side. So maybe I’ll just turn it over to Brendan and then maybe Don.

Yes. Look, I think we’ve demonstrated in a variety of cycles, the ability to deposits at scale. The question is always at what cost? And I think we’re in a dramatically different position in up cycle than we were certainly in the last up cycle, we continue to make improvements sort of on the consumer side, starting with just the breadth of the levers that we’ve built, whether it’s the Citizens Access platform nationally to raise deposits away from our core book the new markets that we’re entering, where we’ve got a solid and stable deposit base, but we think there is a lot of up running room. And in fact, we’re starting to see signs already. We’ve got $100 million in inflow of balanced sales already in the New York market from great execution and solid sales. So we’re optimistic continuing to go forward, that can continue. And as we bring convert the customer base from investors closely they want into the platform, we think that same opportunity will exist in New Jersey. And then our analytics have improved materially over the last couple of years, which allows us to be even more targeted. And when you marry that with what I said a minute ago around just the quality and engagement of our customer base, the confidence of being able to grow deposits with highly engaged customers at more market rates than needing to reach for promo rates. So I feel really good that we will be able to grow at the pace we need with a much more moderate cost.

Yes. I’ll just – I think I said a lot of it in the last comment around treasury services and the growth of that business. But also remember, we’re expanding aggressively in terms of our client base. So we’re in expansion markets. We’re adding a lot of clients and with that comes the opportunity to gather deposits at reasonable costs. So we feel pretty good about it. But I’ll go back to what Brendan said also, it’s really a matter of the day-to-day balancing of volume versus cost and managing that against the asset side of the balance sheet and where we can redeploy capital. So it’s something that we manage carefully, but I feel confident that we’re going to continue to expand the deposit base.

I appreciate all that. I will say I’m a Citizens Access customer. I am not loving the renewed beta assumptions you’re making, but I guess I’ll have to live with it.

Well, you can count on us continuing to be disciplined yet competitive.

Thank you very much. Appreciate it.

Thank you. Your next question comes from the line of Betsy Graseck with Morgan Stanley. Your line is now open.

Hi, good morning.

Good morning.

Two questions. One was just on the most recent conversation that we had on deposit growth. I was intrigued by that. Relative to Bruce, your comment about flowing resi and auto lending growth to, I don’t know, if this is the right word, but keep the LDR, protect the LDR at around the 83% level. So I guess I just wanted to understand if that comment about LDR was more about the deposit growth rate that you were talking to just now? Or was that because of the just opportunities in resi and auto that you’re not seeing as much as maybe you have had over the past few quarters?

Yes. I’d say it’s kind of a factor of a number of considerations. One is that we’re already seeing very strong loan demand on the commercial side. We’re seeing line utilization tick up. So there can be somewhat of a rotation over into more growth on commercial. Therefore, when we look at consumer and in the higher rate environment, some of the margins on the lending in areas like auto and mortgage aren’t what they used to be. And so we can still get to the loan growth assumptions that we had coming into the year with that rotation up to more commercial and throttling back a little bit on the consumer side. And we could keep the pedal to the floor and keep pushing on bringing in those consumer assets, but we think we don’t need to do that at this point. We’ve got NIM going up. The rate hikes is providing a big lift. And if the marginal return on that incremental lending in the consumer side for mortgage and auto isn’t hitting our hurdles, and we have no problem backing off that. The net result of that is that, that benefits the LDR versus keeping the pedal to the floor. So we think that’s a trade-off we’re taking.

Okay. And then just your – I guess the underlying question is how high are you willing for LDR to go? And then I also had just a quick question just on yields in general. This past quarter, you had some nice uplift in resi and the securities book, other retail loans. And I’m just wondering was that a function of swap activity that drove up those yields 2Q or was there – it didn’t look like the balances would have driven that 2Q. So just wondering how the deals went there? Thanks.

Yes. Let me start off and then maybe John and Brendan can add on the yield question. But we’ve been – historically, since the IPO, we’ve had a relatively higher LDR that we worked hard to bring down from the high 90s down into the mid-90s. And then with this big influx of liquidity into the market, we’ve been able to bring the LDR back down to 80-ish and it’s inching up a little bit here with all the loan growth that we’re experiencing. I think we should still be able to manage that in the ‘80s, and I can’t really call exactly where that’s likely to be partly depends on the amount of loan growth that we see. But I think just the way we, over time, brought it from high 90s down into mid-90s and I think we can take another step function here with all the liquidity that we have in the house and continue to manage that in a reasonably conservative position with lots of liquidity. So that would be my answer there. John, maybe you want to pick up the yields?

Yes, I’ll start off on securities and maybe Brendan can take mortgage. But I can tell you, overall, that it’s not swap activity that’s having an impact on either of those. And as it relates to securities, just to give you a sense, there is two dynamics going on there. One is the front book where current yields on the stuff coming into the portfolio are north of 3%. So we’re in the 300 to 330 basis point range, that’s a driver in 1Q. It wasn’t at that level during 1Q, but it was well over 2%. It was probably 230 to 250 during the first quarter, and that was compared to maybe 175 in 4Q. So that’s the dynamic you’re seeing 1.75 in 4Q, 2.30-ish in 1Q and announced over 3%. So that will continue into the second quarter. The other dynamic is the back book premium amortization tends – declines when rates rise. So you’re seeing the tailwind from that into the securities book. And so that’s the driver there. And maybe Brendan can talk about mortgages.

Yes. There is a handful of things on the consumer side. So on other retail, there is a good percentage of that book that’s variable linked to the market with our merchant partners and such. And you’re going to see that kind of ramp up as the market changes. On the resi side, we’re obviously a very big lender in HELOC, which is essentially all variable. And we’ve had four sequential quarters in a row and net balance sheet growth and I believe we’re the number one originator in all of the United States and HELOC. So really striking well the iron is hot and taking advantage of that business. So you’re seeing that flow through in the resi book with the yield improvements there as the rates kind of March north. On the mortgage side, there is a couple of things. One is front book pricing. We’ve been disciplined on front book pricing to the point of being a lot on the market at times as the market lags capacity, but we’re going to make sure we’re using our balance sheet for deep relationships and try to push our rates up as fast as we can with the market. The other just technical dynamic that you’re seeing, if you’re looking at linked quarter on mortgages in Q4, we did have a one-time reserve adjustment to the yields in Q4 that is non-recurring and didn’t happen in Q1. So if you look back a couple of quarters, you’ll see a little bit of noise on what you saw in Q4, but that’s kind of gone. That’s sort of washed out, so we should start to see the mortgage book begin to climb with the percentage of that book that is in variable rate and continued expected discipline on front book pricing.

Got it. Thank you.

Thank you. Your next question comes from the line of Matt O’Connor with Deutsche Bank. Your line is now open. Matt O’Connor: Good morning. I was hoping you guys could remind us with investors, is there any portion of the loan book or securities book that you’re looking to kind of deemphasize or runoff?

I’ll just start off there. I mean I think that the securities book and investors looks as a profile that we would migrate and frankly, have already been migrating to our profile, which is mostly clean duration plus mortgage-backed securities, agency-type paper. So we’ve been in the process of migrating the securities book on that front. In general, we like the loan book that comes over from investors has performed well from a credit perspective. They have a nice core portfolio over there. Maybe Don can talk about anything else that might be migrated at the margin.

Yes. There are certain elements of the book that might be a little bit different as we move forward, but it’s not going to be quick and aggressive. We are going to do it – we are going to migrate it over time. But a lot of the business that they do is very diversifying for us. They are in different elements of the CRE business than we are. So, it looks quite different. And then a lot of the C&I business is smaller company business banking, and we are looking to grow that segment as we move forward. So, you will see some adjustment at the margin, but no aggressive asset sales, I think out blocks.

Other than – I will say, Matt, on my side, we are doing roughly $1 billion to $1.2 billion of DSO adjustments on the Citizens side, and you will see us do some of that as we move around low-yielding assets that we might be acquiring, but we don’t have full plans on that yet.

Yes, balance sheet, optimization and… Matt O’Connor: And then I guess, obviously, there are some opportunities as well to essentially cross-sell. But as we think about layering in investors to the kind of medium-term, do you think it will have any net impact as we think about your loan growth, either a little bit less than standalone or a little bit more or roughly the same?

Well, I mean I would look at it as what Don and Brendan has been able to accomplish when we go into expansion markets, right, in particular, Don’s business and commercial when we entered the Southeast is a good playbook for how we have been able to grow those expansion markets a little faster for a period of time until it converges over time. So, I think you would expect that once we get the engine running with respect to all of the integration and conversion, and we have been able to make our investments that we plan to make in New York Metro. I would suspect for a number of years, you could see the growth rates once that all settles out and baseline, you can see those growth rates actually being higher than Citizens standalone for a number of years until it balances out in terms of the expected market share that we plan to take in that metro.

Yes. John, I will also add that they have a very limited product set on the C&I side. So, bringing in the variety of products that we can offer and capabilities that we can offer, we think there is an opportunity to go after larger companies and also serve their clients in a much more substantial way.

Yes. The same comments on the consumer side, our product set is significantly more diversified than both HSBC and investors, which is great. And we didn’t build those revenue synergies into the deal model. So, we are seeing early signs of significant sales opportunity in New York. We are delivering on that. We are starting marketing middle of the year. We are going to convert early on mortgage and wealth for investors inside of 2022, and then the rest of the platform will convert in 2023. So, it will take some time, but we see an outsized opportunity for sustainable revenue growth over time.

Yes. Let me just chime in here as well, is that we think these deals are going to be a big success, and it’s really not just the expense synergies, which we are going to go get. But if it’s a big success, it means that we were successful in cross-selling more to the customers who haven’t had the benefit of our broader products and services and then just gain market share. And I think we have some very clear ideas about how to go after that, both on the commercial side and the consumer side. And really none of that is – has been put into our forward forecast at this point. So, goal would be like within 3 years to 5 years, if New York starts to take on a look and feel of what we built in Boston and what we built in Philadelphia, is going to be a home run for us. Matt O’Connor: Thank you very much.

Thank you. Your next question comes from the line of Ken Usdin with Jefferies. Your line is now open.

Hi. Thanks. Good morning. I had a question about reserving and provisions. So, just looking back at where you are 130 – 143 ACL is pre- ISPC and then just with all the CECL stuff going on, just wanted to kind of understand where do you think that the reserve lands vis-à-vis a blended day one? And what does that mean for further release or provision growth relative to your expectations that you laid out for charge-offs? Thanks.

Yes, that’s a good question. I mean I think the first thing I would say, when you were saying blended, if you were speaking about investors on a blended basis, I think that their profile is actually quite good. And when you look back in different cycles, their loss rates actually are lower than not only ours, but the regional bank peer set. So – and given the collateralization, etcetera, and a number of other things that help that profile. So, pound-for-pound, they come on with a slightly lower ACL and CECL hit to what CFG standalone is not by a lot, and they are smaller, so it won’t have a huge impact, but they come in a little lower than and call it, the 143 that where we are. So, from that perspective, it gives you a sense for how that might cause us to tick down on a blended basis. CECL day one was 147, we are at 143. We have cleaned out a lot of the portfolios of concern that might have existed back at the end of ‘19 when CECL was adopted, and there has been significant as we mentioned earlier, and we have in the slide deck in the appendix, significant improvements in both commercial and kind of retail businesses since then. So, you could see some opportunity all else equal for back book needs as long as the macro holds for those needs to tick down. I think all of the variability will be on loan growth. And so we are just going to provide for our loan growth and all-in probably be a little lower than we are here, but not by a lot.

The other wildcard, obviously, Ken, is what is the kind of long-term or the medium-term macro forecast look like and can the Fed engineer a soft landing. Is there a higher possibility of recession, which could change that dynamic somewhat. But I think, certainly, right now, with respect to 2022, we feel really good about how we are positioned from a credit standpoint. I would – if you ask me to make a call, I would say it’s unlikely we will have a recession in ‘22. So, at least the clean credit metrics should continue for a while. Whether we can still show net benefits on the provision line, I think those days are probably numbered. But in any case, I think there is still going to be good numbers. And as John said, the ACL may tick down a little more from here, but kind of starting to feel like we are not going to go a huge amount lower.

Yes. And Bruce, as a follow-up to that, it was nice to see the commercial line utilization up 150 basis points you talked about. You are reiterating your full year loan growth guidance. Just wondering if you can give us some on-the-ground color about business activity, supply chain constraints? Just in terms of – and also the trade-off possibly between loans going on the balance sheet versus out the door in capital markets. And just kind of a feel for just how the commercial side of the economy is feeling and how that influences your views on commercial growth? Thanks.

Let me just say a word and then Don really has the best color. But clearly, it’s nice to see the line utilization pick up. Some of it is a little defensive in nature. So, people have been worried about their supply chain and inventory levels. And so when they can get a hold of the materials that they need to go out and buy it. So, I would say inventory build in light of supply chain issues probably has been the biggest driver and a little of that also is inflation, which is causing those materials to cost more. So, that would be, I would say, number one. There is still – people doing deals, doing smaller deals and playing offense in terms of growth. There is a little bit of that kicking in as well. I think what continues to give us confidence is the thing that Don mentioned earlier that there is private capital has amassed tons of firepower to put to work in the markets and is looking to get deals done. And so there is still deal-related activity that should continue to fuel some loan growth. But with that, let me turn it over to Don.

Yes. So, I think you covered most of it. And back to the second half of the question, a lot of the capital markets activity we do is in the leverage buyout area and things like that. So, that’s an origination for distribution business, which it should be. We don’t want a lot of that on our balance sheet, and we continue to maintain average holds of about $12 million in our sponsor business. So, very diversified, very careful from a risk profile. I will say that the utilization trend that we are seeing is actually even a little bit higher as we sit here in mid-April. So, that trend really is driven by cost of goods. So, there is an inflation aspect and some of the stockpiling. But the broader question is we are hearing generally positive things from our customers. Credit quality, as we said, feels pretty good. There is a little bit of pressure on margins as companies have varying degrees of an ability to pass on cost increases where they ire seeing them. But remember that these companies have been through hell over the last 2 years with the pandemic, and they have cut their costs. They have restructured their businesses and they are entering whatever we are entering, whether it would be a slowdown or something that’s just slower growth in a much better position from a management standpoint than they were just 2 years ago. So, that gives us a lot of confidence. And certain clients are being opportunistic where they are seeing, as Bruce said, where they are seeing competitors that are slightly weakened, we are seeing a little bit of M&A activity in the middle market channels that are companies are buying each other right now.

The one last thing you might also add Don is on subscription line financing some of the securitization…

Yes. So, we are seeing significant volume in our subscription line financing for private equity and significant volume in our asset-backed securities businesses in the warehouses. So, those markets are very strong and we continue to see growth in the loan books on both of those activities.

Great. Thanks for all the color.

Thank you. Your next question comes from the line of John Pancari with Evercore. Your line is now open.

Good morning. I appreciate the color you gave there in terms of the commercial drivers and the trend behind the demand. Are you able to perhaps help unpack the high-single digit loan growth expectation ex the deal and ex-PPP for 2022 in terms of how you think about C&I growth and perhaps growth in your CRE portfolio as well? Thanks.

Yes. So, why don’t I start with that. So, we are down to basically almost nothing on the C&I side on PPP. So, that’s in the rearview mirror. So, that’s not in any of our loan growth projections. So, the loan growth that we have referenced is really CFG loan growth. We have assumed a little bit of growth on the investors bank side, but not a lot for the rest of ‘22. So, all the comments we are making are CFG specific. I would say subscription lines are growing the fastest. C&I is growing the second fastest and CRE, we are seeing very, very modest growth. And we are basically on our pre business really still focused on purpose-built office, industrial and life science and a little bit of multifamily, but not a lot. We are really off risk on hospitality and retail. So, not a lot of CRE business there. The issue that we are fighting and continue to fight although it’s getting a little bit better is our originations are really strong, and we are seeing lots of activity both coming into the book and also in the pipeline, but pay-downs have been quite high. And this was the first quarter where we saw pay-downs begin to decline. Maybe that’s a little bit of the volatility in the capital markets, maybe that’s a little bit of the loan market aggressiveness right now, but we are seeing a little bit of a benefit from lower pay-downs, which were running very, very high last year for almost the whole year and really eating up a lot of the origination activity that we are receiving.

Okay. Great. That’s helpful. And then separately, on the credit side, I just have a question there. In terms of the increase in the NPAs and the increase in the 90-day delinquencies, I know you indicated that’s mainly mortgage coming off forbearance. Just want to give you – if you could give us a little color in terms of your confidence there in terms of the resolution of those items? And then separately, in minds of faster-than-expected credit normalization on the consumer side, perhaps in your merchant partnerships or anything? Thanks.

Yes, it’s Brendan. I can take that. On the mortgage side, this is fully expected. These are sort of an administrative move of customers that have been in forbearance for quite some time. We have done extensive analytics on how much loss exposure we have to folks that are coming off of forbearance on to a full repayment schedule and its de minimis. Especially on the mortgage side, we have got very significant coverage on our loan to value. And so we feel really confident in that. Just broadly on the consumer book, we haven’t seen much of any early signs that we are starting to see a tick up in return to normal. We are expecting one, but the delinquency levels generally remain in very strong spot and significantly depressed. Some of the newer portfolios that we have talked a lot about over the years on these calls and others around student loans and merchant point-of-sale maintain incredible strength and have not shown any signs of uptick in early delinquencies whatsoever. So, we feel really confident around the outlook, the state of credit and consumers that the lowest levels it’s ever been, and we continue to sort of beat to the positive almost every month on what we are seeing on NTO. So, I feel really good. And I think – and when you look at the other side of the ledger for the average consumer, they are still showing a lot of excess liquidity, the money in consumer checking accounts is still at all-time highs, really hasn’t moved down. While we are seeing a lot of velocity in customers using credit cards and spending and paying for things, it’s not adding to outstanding. So, in order to believe that you will start to see a meaningful correction on the credit line, I think you would have to see some deflation on the excess cash built up in the consumers’ wallet and start to see a rebound in receivables building up in the credit card. So, we haven’t seen that. So, all the early indicators just aren’t moving yet. Of course, we do expect it will, but just right now, it’s not. So, we will take it.

I would just add to that, John, is all the early warning signs are flash and green, which is great. So, on the consumer side, delinquency roll rates, some of the things Brendan quoted, all appear really, really good. Similarly, on the commercial side, the crit/class ratio continues to go down and the heightened. There is very few credits that are in heightened monitoring. So, that also bodes well for the future. You can – at these very low levels for things like charge-offs and NPAs you can see kind of one item can kind of move that number around a little bit. But overall, we feel really, really positive about the outlook for credit for certainly the balance of this year.

Thanks.

Thank you. Your next question comes from the line of Peter Winter with Wedbush Securities. Your line is now open.

Thanks. I was just curious, are there any plans to manage the available for sale securities portfolio just given the rising rates or any plans to move any of it into like held to maturity or hedge some of this?

Yes, it’s a good question. I mean I think we are in about a little bit less than 10%, call it, high-single digits with HCM, if you – in the first quarter. I think you will see that, that number will rise in the second quarter based upon a number of things that we are doing. We are putting a lot of securities to work just in CFG standalone, just given the environment, now that there is a highly attractive place to grow the securities book at north of 300% yields, just on standalone. And then we are, of course – we have closed on the acquisition of investors and there is about $4 billion of securities there that we are rotating out of the profile that they had into the profile that looks like the kind of securities that we own. So, there is lots of opportunities to address that, and you are likely to see the HCM percentage rise in the second quarter.

Okay. Thanks. And then just secondly, just on the HSBC acquisition, I think at the time of the announcement in May, there was about $9 billion in deposits and you closed it with $6.3 billion in deposits. Do you think at these levels, deposits hold steady, you can grow them? Just – if you could just talk about that change in the outlook.

Yes. Pre legal day one, the rundown in deposits is principally driven by their online business and a segment of international customers that we are rotating into banks that have more global capabilities. And so the good news on that is that we didn’t pay premium of any kind for those customers that we weren’t really going to get at our core. We had modeled in essentially twice the level of deposit attrition post legal day one than you would normally expect in a deal like that, given the profile of the customers that were banking at HSBC. The good news is since legal day one, it looks like a lot of that attrition had accelerated pre-legal day one, and we have seen the portfolio at a broadly stable level with good sales, very strong sales and normal expected is in outflows on the back book. And so we do expect that to be stable now and start to get into growth mode as we ramp up our marketing activities, which would obviously be a bit of a benefit on the deal model side offsetting some of the shortfall in deposits we got on legal day one. So, we feel really, really good on the early signs that we are seeing here we are six weeks or seven weeks in.

Just to add, we had the transition pre legal day one that we didn’t have to pay for it, and it produces the trend with the attrition happening post legal day one. I just want to add that plan.

Okay. Thanks a lot.

Thank you. Your next question comes from the line of Gerard Cassidy with RBC. Your line is now open.

Good morning.

Good morning.

Bruce, you said in your opening comments that obviously, the focus this year is to integrate the acquisitions you did in the Metro New York marketplace, but in the wealth space, if something was priced right that would be something you would consider. Thinking about the Florida franchise as you build that out, if a depository came up at attractive pricing and, again, I know you have played is full with what you are doing in New York, is that something that you could consider, or you really know, we just we are going to wait until we get these things fully integrated before we consider a deposit deal?

Yes. I don’t see us looking at a depository there anytime soon. I think we have got enough on our plate that getting off to this really great start and launching New York Metro is job one. We do have a strategy in Florida that I think is interesting. So, we had a couple of de novo wealth centers, one in Palm Beach and one in Naples that we focused on launching and starting to get those to the right customer levels and the right staffing so that we can really make some traction in those markets. And then we had five or six come over from HSBC, very attractive locations and branches with good staffing in the Miami area. And so again, that’s job one is to try to really make that work, what we have and really drive up the performance of those sites and keep getting smart in the market and keep talking to people, keep trying to figure out kind of where with the next city where we think we could come in and make an entrance and gain some share. So, that’s to me, the focus, and we will keep trying to get smart on the market, but let’s suggest what we have and make that productive. The other point I would make with respect to Florida and elsewhere where we are kind of outside of our core footprint is we are investing heavily in the digital bank. And very recently, we have migrated to a new cloud-based core platform, which is really exciting for us, it’s going to unlock the ability for us to really broaden our offerings and integrate those offerings on the digital platform. And so that’s kind of also twinned with some light branches in markets like Florida, can we really start to bang the opportunity through our digital platforms. And then over time, we will figure out what physical presence do we need to complement those digital offerings. So, it’s pretty exciting. We have a similar opportunity in the Greater Washington area, where we picked up, I think it’s nine or ten branches from HSBC. So, we can try to attack that market through digital and decide is nine or ten the right number, are they in the right locations, do we need to alter that and then using test and learning from Florida and from DC. Are there some other attractive cities where we might want to go next and really put effort into growing digital presence combined with some thin branch presence.

Very good Bruce, and to pivot the next question is on deposits. How do you guys weigh and you talked about how certificates of deposits have come down dramatically. You have got a very strong DDA balance core now much higher than when you went public, of course. But with rates moving up so quickly now in the 10 year is almost at 3% today, when does long-term funding with low-cost CDs make sense? And then Don, when do your customers start asking for higher compensating balances as rates move up? Have you guys seen more discussions there as well on the compensating balances on the commercial side?

Yes. I will go ahead and start a couple of thoughts there. I mean I think that as you heard from Brendan earlier, and you saw on our Slide 7, our CD portfolio is much smaller than it was before. And what that – at the start, and I think what the point there is that CDs could be part of the story. And we would do it in a way that’s connected to a deep customer relationship rather than sort of a pseudo wholesale funding approach, which is I think how things got played out early in the last cycle for us, whereas this cycle is all going to be about customer relationships. I think the other thing to keep in mind is that over the last cycle, we expect CD betas to be lower during the cycle and part due to how quickly you think the cycle is going to go. The last cycle took a longer time, 2 years to 3 years. And so you kept getting that ratcheted up cost of CDs every time they came to maturity. So, I do think CDs can be part of the story given deep customer relationships and a shorter cycle, CDs can absolutely be something a tool that will utilize coming off a lower base. So, that’s the first point. And the second point is that on the commercial side, you will have balanced migration, that’s natural as compensating balances that don’t need to be quite as high to get as earnings credit rates actually rise over time. So yes, there will be some of that migration that’s built into the deposit betas that we articulated earlier and built into our deposit costs overall. And so – but it’s the same point there that given the number of ways that we can interact with our customers on the commercial side, we are deepening our relationships there and expect that those migrations will be well controlled and as expected.

Yes. I think that’s exactly right. And we have actually gone out over the last month or so with a full or information package with all of our bankers to discuss deposit and pricing levels as part of the overall relationship, with all of our relationship managers. So, we are well on top of it. We have had some people pull deposits, but we haven’t had a problem backfilling and bringing in other deposits to basically cover any outflows.

Great. Thank you for the color.

Okay. Alright. I think that’s it for the questions in the queue. And let me just close by thanking everybody again for dialing in today. We appreciate your interest and your support. Have a great day. Thank you.

That concludes today’s conference call. Thank you for your participation. You may now disconnect.