BANCANALYSTS ASSOCIATION OF BOSTON'S ANNUAL BANK CONFERENCE - CITIZENS FINANCIAL GROUP INC

Explicit Guidance:

• ROE Target: Management reiterates confidence in achieving a Return on Equity (ROE) target of 16% to 18% by the end of 2027.
• Capital Return: Committed to continuing capital return via common dividends and share repurchases; maintains flexibility to adjust repurchase pace based on capital needs, share price, and regulatory environment, with no single mechanical trigger defined.
• Cost Savings Targets:
  • "Reimagine the Bank" program netted neutral expenses in 2026 (first full year).
  • 2027: Targeting $250 million in run-rate savings.
  • 2028: Targeting $450 million in run-rate savings, with two-thirds impacting the expense line (approx. 5% of the 2025 expense base).

Business-Segment Outlook:

• Private Bank:
  • Current status: $18B in deposits, $12B in loans, $12.4B in client assets; contributes ~11% of EPS with >25% ROE.
  • Geographic Expansion: 10 full-service Private Bank Offices (PBOs) currently open; 7 new offices scheduled for opening next year; long-term potential to grow to 30 PBOs in attractive markets (including Newport Beach, FL, NY, NJ).
  • Asset Growth: Client assets expected to grow from current $12.4B to > $30B in the medium term.
  • Capital Discipline: Targeting a Loan-to-Deposit ratio capped at 70%.
• Commercial Bank & Capital Markets:
  • Fee Outlook: In a constructive environment, Capital Markets business is expected to generate $125 million to $175 million per quarter, potentially more in favorable conditions.
  • Backlog: M&A pipeline is at record levels; substantial backlog extends through 2027.
  • Transaction Trends: Strong momentum in Q1–Q3 2026 with a good outlook for Q4; equity backlog is strong though some large transactions face market clearance timing.
  • Sector Focus: Continued strength in digital infrastructure (post-acquisition of DH Capital), online gaming, defense, and aerospace; increasing focus on sponsored deals (Private Equity).
• Consumer Bank ("Next" Initiative):
  • Branch Strategy: Deliberate 10-year strategy to maintain total branch count (net of exits and openings) through 2035.
  • Operations: Closing 100–120 "in-store" branches to fund 50–60 new traditional/advisory branches; adding ~10 specialized wealth advisors per quarter.
  • Growth Focus: Accelerating deposit and household growth in core Northeast footprint (specifically NY Metro) via digital investment rather than acquisition.

Market and Competitive Outlook:

• Deposit Growth: Focus on "operating accounts" and cross-selling to secure low-cost deposits; DDA percentage currently ~33% and maintained above 30% in the private bank.
• Credit Quality: No broad-based stress in Commercial & Industrial (CNI) or consumer portfolios; Office CRE portfolio work is "considerably behind" with remaining quarters of run-off; NCOs/charge-offs expected to decline further.
• AI Infrastructure Exposure: Direct exposure to data centers is modest (~1% of loans, ~$1.5B); underwriting focuses on experienced operators with 12–15 year leases and diversified hyperscaler portfolios; indirect exposure to ancillary sectors deemed resilient and not a systemic risk.

Macro / Industry Outlook:

• GDP Growth: Forecasts GDP growth of 2.0% to 2.5% over the next 4–5 quarters.
• Interest Rates: Expects additional rate hikes are likely if the economy remains healthy, though the number and timing are uncertain; current unemployment at ~4% supports consumer resilience.
• Inflation & Policy: Inflation expected to decline, potentially aided by geopolitical conflict resolution; federal regulation and tax policies remain supportive of growth despite potential increased congressional oversight.
• Commercial Activity: Commercial clients remain in "offense," investing and borrowing despite some caution; consumer spending remains resilient, supported by high-income equity gains and home values.

Strategic Initiatives:

• "Reimagine the Bank" (AI & Efficiency):
  • Leveraging "agentic AI" and cloud infrastructure to rethink processes (compliance, onboarding, credit memos, fraud).
  • Current Progress: Rationalized 35 applications in 2026; ~500 employees involved; $100 million exit run rate achieved.
  • Goal: Material impact on efficiency and client experience; savings are additive to the ROE bridge.
• Private Wealth Expansion: Accelerating hiring of high-quality teams and opening new physical offices to capture a share of the affluent market, aiming to match industry "white-glove" service standards.

Risks and Headwinds to Outlook:

• Rate Volatility: Potential volatility in interest rates could impact AOCI (Accumulated Other Comprehensive Income) and the pace of capital return via buybacks; however, CET1 ratio remains robust at 10.5%.
• Timing Risks: Capital Markets fee income faces seasonality and deal closure timing risks due to market uncertainty or transaction approval delays.
• Geopolitical/Regulatory: Inflation impacts from tariffs and geopolitical conflicts; potential for increased regulatory oversight following election changes in Congress.
• Asset Quality Monitoring: Continued monitoring of lower-income consumer cohorts and CRE office portfolios, though currently viewed as manageable.

Management Tone on the Future:

• Confidence: High confidence in the "Reimagine the Bank" program's financial delivery and the 16–18% ROE target.
• Strategy: Emphasizes "disciplined growth" and "multiple growth vectors" (Private Bank, Capital Markets, Digital Consumer) rather than reliance on single market conditions.
• Trend: Describes the current environment as "constructive" with "encouraging momentum," noting that execution is precise and the franchise is "underappreciated."

Miscellaneous:

• CET1 Ratio: Currently at 10.5% (high end of operating range); guided to 10.6–10.7% by year-end, with Basel 3 RWA benefits potentially adding ~110 basis points to the ratio.
• Competitive Landscape: Notes a slowdown in bank reconsolidation (Citizens banks count dropped from 215 to 210), positioning Citizens as the largest and fastest-growing in this specific sub-sector.