Good morning, everyone, and Welcome to the Citizens Financial Group fourth quarter and full year 2021 earnings conference call. My name is Alan, and I'll 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. Now I'll turn the call over to Kristin Silberberg, Executive Vice President of Investor Relations. Kristin, you may begin.
Thank you, Alan. 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 fourth quarter results. Brendan Coughlin, Head of Consumer Banking, and Don McCree, Head of Commercial Banking, are also here and will discuss some of the exciting strategic initiatives that we have underway. We'll be referencing our fourth quarter and full year earnings presentation located on our investor relations website. After the presentation, we'll 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 two of the presentation. We also reference non-GAAP financial measures, so it's important to review our GAAP results on page three of the presentation and the reconciliations in the appendix. With that, I'll hand over to you, Bruce.
Thanks, Kristin. Good morning, everyone, and thanks for joining our call. We are pleased with the financial performance we delivered for the fourth quarter and the full year, and we feel well-positioned to continue our momentum through 2022. The investments that we've made to transform and reposition Citizens since our IPO are really bearing fruit. Our customer-centric approach, backed by a full range of product offerings and strong digital data and technology capabilities, has allowed us to gain market share, deepen relationships with customers, and develop sustainable growth opportunities. We've navigated the pandemic environment well, shifting to offense over the course of 2021 to accelerate our strategy, including five acquisitions, as we strive to build a unique and special top-performing bank. I'll comment briefly on a few of the financial headlines and let John take you through the details.
For the quarter, our underlying earnings per share was $1.26, and our return on tangible common equity was 14.6%. Sequential operating leverage was 1.5%. That's 1.8% ex-acquisitions, and sequential growth in PPNR was a strong 6%. Leading our performance was an unbelievably strong quarter in our capital markets business, led by M&A and loan syndications. We've built a great business through hiring top talent in combination with several acquisitions, and our approach to market is really clicking. For the quarter, we were number one in the league table for middle market sponsored transactions and number four for overall middle market. We only had JMP results for six weeks of the quarter, but we're very excited about how they'll augment what we've already assembled.
Our highlights for the quarter include strong sequential loan growth of 4% on a spot basis, 5% ex-PPP, while average growth was 2%, and that's 3% ex-PPP. Commercial growth and a pickup in line utilization were bright spots, and we entered 2022 with a good jump-off point. We did a nice job on expenses, pulling across our top efficiency saves to help offset higher incentive comp tied to revenues. Credit remains pristine, as good as it gets. Our capital position remains strong, with CET1 ratio of 9.9%, giving us a great deal of capital management flexibility in 2022. We have the capital and liquidity to fund the attractive loan growth we expect to see in 2022 while looking for selective acquisitions and ensuring strong returns of capital to shareholders.
With respect to our guidance for 2022, we assume solid economic growth of around 4%, several Fed rate hikes, and improvement in loan demand. Our TOP VI and TOP VII programs should allow us to keep expense growth ex acquisitions below 3%, and we're targeting 2% positive operating leverage, including the bank deal scheduled to close soon and almost 5% ex-PPP impact. Credit is expected to continue to be highly favorable, and I'd expect our return on tangible common equity to move over 14% in the second half of the year, potentially reaching 15% in Q4.
All in all, a very strong year of execution and delivery for all stakeholders by Citizens in 2021, and we feel we are well-positioned to do well in 2022 and continue our journey towards becoming a top-performing bank. I'd like to end my remarks by thanking our colleagues for rising to the occasion and delivering a great effort in 2021. We know we can count on you again in the new year. With that, I'll turn it over to John.
Thanks, Bruce, and good morning, everyone. First, I'll start with the headlines for the quarter. We reported underlying net income of $569 million and EPS of $1.26. Our underlying ROTCE for the quarter was 14.6%, which included the impact of a credit provision benefit. Revenue of $1.7 billion was up 4% linked quarter, given strong growth in fee income. Average loans are up a solid 3% in the quarter before the impact of PPP forgiveness led by retail, which is up by 4% and 3% growth in commercial.
Overall spot loan growth of 5% for the quarter, excluding PPP, provides good underlying momentum for loan growth this year. Linked quarter fee growth was 16% or 10% before acquisitions, including outstanding results in capital markets, driven by record M&A fees and loan syndications as we've executed well and gained market share. Excluding the impact of the two commercial fee-based acquisitions we closed in the second half, we delivered underlying positive sequential operating leverage of approximately 2% this quarter with well-controlled expenses. We recorded a credit provision benefit of $25 million, which reflects strong credit performance and the improving economy. Our year-end ACL ratio stands at 1.51% above our day one CECL level of 1.47%.
We continue to have a very strong capital position with CET1 at 9.9% after returning $360 million to shareholders in dividends and share repurchases during the quarter. Next, I'll provide some key takeaways for the fourth quarter while referring to the presentation slides. Net interest income on slide six was down 2% given lower net interest margin, partially offset by strong loan growth. The net interest margin was 2.66%, down 6 basis points, reflecting a reduced benefit from PPP forgiveness and lower earning asset yields given changes in loan mix and spread compression, partially offset by the impact of lower cash balances as we redeployed some of our excess liquidity into loan growth. We also made continued progress lowering our interest-bearing deposit costs, which are down 1 basis point to 13 basis points.
On the bottom left side of the page, you can see we remain highly asset sensitive at the end of the quarter, with an overall sensitivity of 10.1% to a gradual 200 basis point rise in rates. At the end of the year, about 60% of our sensitivity is geared towards the short end, so we are well positioned to benefit when the Fed begins to tighten. Referring to slide seven, we delivered terrific fee results this quarter, demonstrating the strength and diversity of our businesses with outstanding results in capital markets, reflecting our long-term investments in the business and solid performance across other fee categories. We set a new record for quarterly capital markets fees with exceptional strength in M&A advisory and loan syndication fees amid a backdrop of good market activity.
We continue to gain market share and have nice momentum as we enter 2022. We also delivered our best quarterly results of the year in FX and IRP, which are up 21% linked quarter, given an increase in currency transactions driven by robust M&A activity and an increase in client hedging given the outlook for rate raises. Mortgage fees declined in the quarter against a backdrop of strong competition and excess industry capacity. We saw ongoing pressure on gain on sale margins, particularly in third-party channels and seasonally lower production volume. Mortgage servicing income improved as our third-party servicing book grew 3% linked quarter to $90 billion. Card fees were stable as debit transactions and credit card spend continue to exceed pre-pandemic levels. Wealth fees also remained strong.
Service charges and fees were modestly lower, reflecting the impact of Citizens Peace of Mind, our new customer-friendly deposit account feature. We are seeing these changes drive clear benefits in customer experience as customer satisfaction is up and call center volume is down since we implemented the changes. On slide eight, expenses were well controlled. Excluding the impact of the fee-based acquisitions that closed in the second half of the year, non-interest expense was stable, and we drove linked-quarter operating leverage of about 2%. These results reflect higher incentive compensation tied to strong capital markets revenue and strategic investments, which was balanced by strong expense discipline and the benefit of top efficiency initiatives. Period-end loans on slide 9 were up 4% linked-quarter or 5% excluding PPP. We were pleased to see strong commercial loan growth up more than 6% excluding PPP.
Retail loans are also growing up 4%. Average loans were up 2% and up more than 3% excluding PPP. Retail strength was driven by mortgage and auto. Commercial originations were very strong, exceeding pre-pandemic levels led by corporate banking, subscription line financing, supporting deal-related activity and asset-backed lending. After line utilization levels ticked up last quarter, we saw a larger increase of about 270 basis points to 35% on a spot basis this quarter, primarily driven by deal-related financing activity. We continue to expect a gradual recovery in utilization over the coming quarters as some of the issues holding back investments such as supply chain challenges and labor shortages resolve. In addition, our period end commitments are up a very strong 8%, which will benefit us as investment continues to pick up.
On slide 10, deposit flows continue to be robust, especially in low-cost categories, and our liquidity ratios remain strong. Average deposits were up 1% linked quarter and 5% year-over-year, with strong growth in demand deposits, which now make up 32% of total deposits, up from 30% last year. Interest-bearing deposits were broadly stable as the continued runoff of higher cost term deposits was offset by growth in demand deposits and lower cost categories. We continue to make good progress on deposit repricing, with interest-bearing deposit costs down 1 basis point to 13 basis points during the quarter. Given the changing tone of the Fed and the potential that they may begin to tighten earlier, early this year, we thought it would be helpful to make a few points about how we see our deposit costs behaving in the next rate cycle.
First, we have made significant improvements to our deposit-related capabilities since the IPO. Our enhanced data analytics capabilities allow us to optimize the deposit base by attracting more stable deposits with targeted offers and by employing more dynamic pricing. We also have the added lever of Citizens Access, which has proven to be a very efficient deposit channel. We have strengthened our commercial offerings and invested in enhanced tools to drive higher operating deposits. Secondly, our mix of lower cost deposits is much better with demand deposits now 32% of the book compared to 27% at the beginning of the last rate cycle. Consumer CDs, which were at 14% of total deposits at the end of the last cycle, are now down to 3%, which is below peer levels.
Also, note that the HSBC branch acquisition will add almost $8 billion or 5% to our core deposits when we close this quarter. Lastly, we have vastly improved our overall liquidity profile with a lower LDR and much lower deposit costs than when we entered the last up cycle. When you add that all up, we are confident that our deposit base will be meaningfully lower than the prior cycle. Moving on to credit on slide 11. We saw excellent credit results again this quarter. Net charge-offs were broadly stable at 14 basis points for the fourth quarter, with good performance across the portfolio. Nonperforming loans decreased 6% linked quarter with continued improvement in commercial. Other credit metrics continued to improve as criticized loans were lower and internal ratings upgrades exceeded downgrades. Moving to slide 12, we maintained excellent balance sheet strength.
Our CET1 ratio remains strong at 9.9% at the end of the fourth quarter after returning $360 million in capital to shareholders through dividends and share repurchases and closing the JMP acquisition. On the bottom right of the page, we expect a 22 basis point impact to CET1 from the pending HSBC acquisition, and the ISBC transaction will be effectively neutral given the stock to be issued in the deal. Shifting gears towards business strategy a bit, we thought it would be useful to have Brendan and Don discuss some of the exciting strategic initiatives that we have underway and how we are poised for strong and sustainable growth. Brendan, over to you.
Thanks, John. Good morning, everybody. On slide 13, you can see we dramatically transformed the consumer bank since the IPO and have a strong foundation to propel us into the future. Let me share a few highlights. We're acquiring customers at a pace that far exceeds the pace of household formation in the U.S., nearly doubling our customer base from approximately 3 million at the time of our IPO to 6.4 million today. Further, our mobile engagement is up 15% year-over-year, closing gaps to peers and allowing to thin our physical network by another 8% this year, about 20% since our IPO. This enables us to reinvest in growth strategies.
We've built one of the most diversified consumer lending businesses in the U.S., giving us a number of additional levers for revenue growth and customer deepening that many of our peer banks lack. We've transformed our deposit book, repositioning our deposit mix quite significantly with strong DDA growth, which has really driven down our cost of funds by about 75% compared with the time of our IPO. Finally, while we have more work to do, our wealth business has been repositioned for growth, and our AUM is more than three times the size at the time of the IPO. Five years ago, we were very much a traditional regional-only bank. We have strong momentum in the business, have broadly caught up with peers, and in a number of places have built best-in-market capabilities that have led to differentiated growth rates.
Moving on to slide 14 and looking forward, we've prioritized several strategic initiatives that should help us deliver above-trend revenue growth, adding about $1 billion by year five. First, we expect to leverage our acquisitions in the New York metro market to grow share and deepen relationships. We will pick up almost 1 million new customers who have been underserved, given that their current banks don't have the breadth of product capabilities that we have. There is strong upside if we can replicate in New York what we have done in our core markets like Philadelphia and Boston. The second area is wealth, where we have a great opportunity as well. We recently attracted a new and strong leadership team with a long track record of industry success. Our regional footprint and our bank customer base is highly attractive and provides significant opportunity for sustained growth.
Third, our Citizens Pay offering is unique among all the industry players in the fast-growing buy now, pay later space. We were early movers in this space, starting with the Apple partnership in 2015. We've built a very strong position now with 44 partners. We've added industry verticals and have remained focused on gaining marquee partners, providing good momentum and with a strong pipeline for 2022. Lastly, our national push will be led by our digital capabilities, and that includes our efforts to build on the Citizens Access launch in 2018 and the integration of our full range of products and services on a modern cloud-based platform. We'll continue to add products to the platform in 2022, and we'll aim to drive improved customer deepening.
We'll also leverage this strategy to accelerate our technology transformation of our core bank as we ultimately aim to converge the operating platforms into one national digital-first structure. Now, let me pass it over to Don.
Okay, good stuff, Brendan. Let me shift to our commercial priorities, which are on slide 15. We've added some great talent to the commercial bank on both the coverage side as well as the product side, and we're able to do more for our customers over their life cycle than ever before. We've been near the top of the middle market league tables, helping corporate clients and private equity sponsors access capital through private and public debt and equity markets. We've integrated our cash management and global market solutions well with our coverage teams. On the coverage side, we've been expanding geographically and moving upmarket into the mid-corporate space where it's critical to deliver deep industry expertise. Our JMP acquisition, which closed late last year, gives us a much broader and deeper corporate finance coverage in technology, health care, and financial services.
Plus, we gain an equities business that is very well run, focused, and highly regarded, and we're already seeing great cross-sell dividends off of it. As non-bank lenders continue to take lending market share from banks and private equity ownership of companies continue to increase, we've broadened our capabilities to better compete successfully in the new landscape. We increasingly generate more fee revenue across our customer base given these expanded capabilities. It's also worth noting that Willamette, the transaction we closed mid last year, dramatically expands our valuation services business with a very prestigious outfit.
This capability is highly synergistic with our M&A and broader capital markets effort and has annuity-like qualities. You can see the success we've had in building and scaling up our businesses to deliver more than just traditional banking products to our clients. We are highly confident this will continue to drive sustainable and growing revenue streams. Over to you, John.
Thanks, Don. On slide 16, you'll see some examples of the tremendous progress we've made against the key strategic initiatives that Brendan and Don mentioned, and other work we are doing across the bank to better serve our customers and make Citizens a great place to work. We are very excited to see how our digital-first approach is increasing engagement with our customers and how this is all translating into a better experience and higher satisfaction. Moving to slide 17, I'll touch on our top programs. Even as we pivot to offense with our strategic initiatives and acquisitions, it is important to remember that a key to Citizens' success since our IPO has been our continuous effort to realize efficiencies and reinvest these savings back into our businesses so we can serve customers better.
We've effectively wrapped up our TOP VI program after achieving our targeted pre-tax run rate benefits of approximately $425 million at the end of 2021. Now we have launched TOP VII with a goal of an exit run rate of about $100 million of pre-tax benefits by the end of 2022. We are really doubling back to mine areas where we have already been successful. For example, continuing our multi-year journey of digital transformation across consumer and commercial, looking at further organizational streamlining, accelerating and building on our next-gen tech initiatives, and doing more in the cloud. We're going to focus on maturing our SAFe-Agile operating model and take another look at our vendor spend as well. Based on the work we've done so far, we feel confident that we can deliver on this new program. Moving to slide 18.
We made a lot of progress on the ESG front last year, and we will continue to make meaningful progress in 2022. A few highlights were the launch of a new green deposits program to allow corporate clients to direct their cash reserves towards companies and projects that are expected to create a positive environmental impact. We adopted targets to meaningfully reduce our Scope 1 and Scope 2 greenhouse gas emissions. We have a strong commitment to social equity, and our colleagues continue a tradition of being highly focused on volunteering in our communities. To serve our clients better, we introduced new deposit account features that help customers avoid unexpected overdraft fees, and we immediately saw changes that indicate a meaningful improvement in customer experience. This should help attract and keep more customers with the bank.
Now for some high-level commentary on the outlook for full year 2022 on slide 19. First, let me be clear that this is a standalone outlook that includes JMP and Willamette, which closed late last year, but does not include any benefit from our pending acquisitions of HSBC and Investors. The bottom left corner of the page includes information that should help if you are trying to also layer in the expected contribution from these acquisitions in 2022. For 2022, we expect NII to be up 3%-5%, driven primarily by mid-single-digit average loan growth. Excluding PPP, we expect NII to grow high single digits, driven by high single-digit average loan growth. Average interest earning assets are expected to be up slightly as excess liquidity is deployed into loan growth.
The rate scenario used in our outlook is based on the forward curve as of January fifth and includes three implied Fed rate hikes of 25 basis points each in April, July, and December. On the long end, we are planning for the ten-year Treasury to be about 1.9% by the end of the year. The rate curve benefit on net interest margin will allow us to more than offset the 2022 impacts from lower PPP forgiveness and swap revenue while presenting meaningful upside to NIM in 2023 and beyond. Fee income is expected to be up 4%-7% given continued strength in capital markets and wealth following record performances in 2021.
Non-interest expense is expected to be up 5%-6% given the full year effect of our commercial fee-based acquisitions, or up less than 3% excluding the impact of these acquisitions. We have included an expense walk on slide 24 that lays out the drivers. Credit is expected to remain excellent, with net charge-offs broadly stable to down slightly and provision expense less than net charge-offs. We plan to continue operating with a CET1 ratio within our targeted range of 9.75%-10%, which incorporates an anticipated increase in our dividend in the second half of the year.
On the lower left of the slide, you'll see our expectations for the pro forma impact of HSBC and Investors with EPS accretion of about 5% based on consensus at the time of announcement and approximately $475 million in additional PPNR to our 2022 results. Importantly, we expect to deliver positive operating leverage of approximately 2% on an underlying basis for the year, including HSBC and Investors. If you set aside the impact of PPP, that would be a very strong 5% operating leverage. Moving to slide 20, I'll cover the outlook for the first quarter. We expect NII to be down about 1% despite solid loan growth, given a $20 million smaller contribution from PPP and an $18 million impact from lower day count.
Including the impact from HSBC, NII will be broadly stable for the quarter. Average loans are expected to be up 2%-3% with interest-earning assets broadly stable. Fees are expected to be down 8%-12%, reflecting seasonally lower capital markets fees than the record we delivered last quarter as well as other seasonal impacts. Non-interest expense is expected to be up approximately 6% given seasonal compensation impacts and the full quarter impact of the JMP acquisition. Net charge-offs are expected to be broadly stable with provision less than net charge-offs. We expect our CET1 ratio to land at around 9.75%, excluding an impact of about 22 basis points from the HSBC transaction, which we expect to close mid-quarter.
To sum up with slide 21, we feel that we finished 2021 with a great quarter and enter 2022 with strong momentum. We have a winning strategy. We are building capabilities organically and through acquisitions that deliver value to our customers and growth for our shareholders. Our strong leadership team will continue to focus on execution and building a top-performing bank. With that, I'll hand it back over to Bruce.
Okay. Thank you, John. Operator, let's open it up for some Q&A.
Thank you, Mr. Van Saun. We are now ready for the question-and-answer portion of the call. If you'd like to ask a question, press one then zero on your touchtone phone. You'll hear an indication you've been placed into the queue, and you may remove yourself from the queue by repeating the one then zero command. Should you be on a speakerphone, we ask you to please pick up your handset and to make certain your phone is unmuted before pressing any buttons. Again, for questions press one then zero. Your first question will come from the line of Peter Winter with Wedbush Securities. Your line is open now.
Good morning. I had a question. One thing I hear I get from investors is the potential for deal risk noise just between the HSBC and Investors Bancorp. Also the Investors loan mix being heavy in commercial real estate. The question is. Is there a need to remix the loan portfolio at Investors and lead to some near-term revenue headwinds and just potential volatility closing both deals in the first half of the year?
Let me start, and John, you can jump in. It's Bruce. Peter, you know, I think we're working really well and hard to make sure that these deals come off very smoothly, customers have a good experience, and we can introduce our approach to banking right off the bat, and take advantage of, I think, some really great synergy opportunities. We've set up a separate integration office. We've had outside help helping us through and put dedicated teams to make sure that we get off to a good start. I don't really see any disruption from smoothness of operations. I think that'll come off very, very well. You know, we're monitoring the performance of both businesses, and they seem to be performing to our expectations.
That's also a good fact. You know, we will end up taking on more commercial real estate exposure when Investors closes. However, most of that is in multifamily. The kind of risk of that portfolio is relatively modest in terms of the spectrum of commercial real estate risk. I think we'll look to grow our other loan categories faster over time, which will bring kind of that exposure back into more alignment with where a targeted balance sheet would be. But we don't think there'll be any need to do any dramatic surgery or anything that would disrupt the momentum that we have in loan growth. I'll stop there. John, if you want to add anything to that.
Yeah, I think that's well said. I'd just add that as it relates to the operational side of things, we've had a number of mock conversions and dress rehearsals that have gone extremely well. The last one is I think next weekend. We're right on schedule for HSBC for that close and conversion, you know, in middle of February. That's really sort of well handled, and we're deep into the planning on Investors as well, planning for legal day one, planning for customer day one, planning for conversion. Those plans are also well in sight and appear well able to be executed.
On the balance sheet aspects that Bruce mentioned, and just re-emphasizing, our front book originations will look different than the back book. The back book has the multifamily loan portfolio as Bruce indicated. That front book is gonna have a lot more C&I and a lot more consumer lending going forward than Investors has had in the past. With that, I'll go ahead and leave it there.
Thanks. Very helpful. Then if I could just ask, John, I'm wondering, could you quantify the impact to net interest income for every 25 basis point rate hike and what you're assuming for the deposit betas?
Yeah, I'll go ahead and talk about that. I mean, I think we are highly asset sensitive, and that's built into the guide for NII for 2022, based on the [Gen AI] curve. As you know, since then, the curve has increased a fair bit, as of just looking at it where things ended up yesterday. There's more upside in 2022, if the rate environment continues to unfold as we're seeing it in the last several days. But as it relates to the actual sensitivity, the way that shakes out is that we're mostly sensitive to the short end, and that'll drive about $20 million.
If there's an extra 25 basis points on top of the forward curves as of January 5th, we'll generate another $20 million per quarter on that, on the short end, and we'll get another $10 million-$15 million per quarter on the long end versus the January 5th forward curve for an overall $30 million-$35 million per quarter of additional benefit if you have 25 basis points across-
It's a parallel shift.
Yeah, on a parallel shift up from the [Gen AI] curve. As it relates to deposit betas, I mean, this is a very exciting story. I mean, we've completely transformed the deposit franchise since the IPO. I would say that, as I mentioned in my remarks, I think that our deposit betas are going to be meaningfully lower in this next cycle. You know, we should start off the cycle. There's a lag and we've got that lag built in, but we also have some betas built in.
I would say that the 2022 betas, you know, at the beginning of this cycle are gonna be much lower than the betas that we experienced at the beginning of the rate rise cycle last time around, given all the investments we made in product capability, in pricing and approach and with the added lever of Citizens Access. We're really excited about being able to demonstrate the strength of the deposit franchise in this cycle going forward.
Yeah. I just to quantify that a little bit, if you look at the last move up 2% on Fed funds, and then you compared it, if that happened today, we'd probably be a third less in terms of our deposit betas than we were last time around.
Exactly.
Okay. Thanks very much.
Okay.
Your next question will come from Ken Usdin with Jefferies. Go ahead, please.
Thanks. Good morning, guys. Thank you for the detail on the merger updates and the timelines. I was just wondering, can you just give us a sense of at what point do you expect to get both converted? Do you have an understanding of when you think you'll get to kind of, you know, full run rate cost saves from the combination of HSBC and ISBC?
Yeah, I'll go ahead and start. As it relates to, we're targeting to the end of 2023 when we'll have substantially all the synergies done. As I mentioned, we're gonna close and convert HSBC here in February. The expectation is, our target is to close Investors in early first quarter, early April. I would say the way to think about conversion is that that's not gonna be a big bang approach. We're gonna see that conversions happen throughout on a staged and phased basis throughout 2022. Assuming we close in early April, see a couple of platforms close throughout 2022 and into the end of 2022, there could be some stragglers into the early part of 2023.
Again, it's not gonna be a big bang. We're gonna move certain platforms over as they become ready to go. I think for example, Mortgage and Wealth are two platforms that will go early and the overall core would happen later. Maybe I'll just turn it over to others if they want to add any color to that.
No. I think that's right, John.
Okay, great. My second question is just, I know you've said very clearly that you wouldn't expect to, you know, update, you know, capital targets and such until you reach your medium-term goals. I'm just wondering, so, how should we be thinking about share purchase in terms of, you know, getting through closings and any anticipations you have about anticipating this year's CCAR process with you getting back into it in 2022?
I mean, I'll just start off. As you may know, I mean, we've talked about the CET1. Our capital priorities start off with the dividend and supporting organic growth and fee-based bolt-ons. We wanna put capital to work in that manner. To the extent that those opportunities you know leave some capital around, then we engage in buybacks, which we did this quarter or this past quarter full Q as we articulated in our remarks. I mean, I think we're coming into CCAR season, and we tend to on an annual basis take another look at capital targets and what the trajectory of capital return will be. We also have the deals that are pending. I think you'll get we can be a little bit more, you know, sort of give another update on that as you get into the first quarter call.
Yeah. Ken, just from a technical standpoint, we had an authorization to buy back $750 million of our stock. We've used about $300 million of that to date. So we have $450 million left for this year, which should give us plenty of running room. When we get through CCAR, you might see us do an adjustment to that. Anyway, that's a little bit of the framework that we're operating under.
Got it. Okay. Thanks, guys.
Yep.
Your next question will come from John Pancari with Evercore ISI. Your line is now open.
Morning.
Morning.
Just on the loan trends, clearly, you know, the commercial trends came in very solid and better than expected. I just want to see if you can give us a little more granularity on where you're really seeing that strength and the drivers. I know you mentioned deal financing. Are you seeing CapEx plans start to drive some drawdowns there? Separately, just in terms of the end-of-period loan balances, it looks like there are a few billion above the average balances. Are the end-of-period balances a good leading indicator into the outlook as we model this out.
Maybe I'll just start off and Don can weigh in here. I mean, I think as we mentioned, corporate banking and subscription line finance and asset-backed lending all contributed. It has been an excellent quarter, and there is momentum with spot balances higher than average. That's right, John. I would say when you split it out, we are seeing last quarter, we saw a tick up in utilization from our sort of bread and butter corporate banking clients. This quarter we saw another tick up, you know, in that sense. A lot of the increase was driven by deal financing, but we are seeing some underlying tick up, maybe 50 basis points, you know, last quarter, another 50 or so this quarter. Maybe I'll just turn it over to Don to add any additional.
Yeah, no, I think that's right. I think the big macro is our origination volumes are just huge. Record quarter on quarter on quarter. They've been offset by payoffs as people have gone to the capital markets or and in particular real estate, a lot of properties are trading, so we're being taken out of loans due to underlying property sales. We're really encouraged by what we're seeing on the origination side. The subscription line business that we have is really going quite well, and it's growing quite quickly. Some of the deal financing that happened in the fourth quarter will be refinanced out in the capital markets probably, which is good for us 'cause we'll participate in that.
We think the trend, you know, the trend continues. The other thing that we are seeing is a lot of activity in our real estate business on the origination side. We're seeing, you know, quite a bit of warehousing, quite a bit of industrial, quite a bit of life sciences, and then increasingly build to suit office, believe it or not. You know, investment grade corporates building new office space to occupy post-pandemic. In terms of working capital and CapEx and things like that, it's really hard to kind of discern how quickly that's gonna happen. You've got, you know, the new supply chain challenges. You've got some of the labor challenges. You've got some of the, you know, international countries shutting down. It's kind of fits and starts, but we think it feels pretty good to us overall.
Okay. Great. Thanks. Bruce, you know, just a question from higher level. I know you've certainly been acquisitive here in adding to your business, both on the banking side as well as capital markets. Could you just talk about from the banking perspective the need for scale and the whole debate that do you need scale to be able to compete effectively? More specifically, do you think ultimately you need a national franchise? Thanks.
Sure. I like our size, John. I think we have enough scale that we can compete against all comers. We have to be extremely disciplined. We have to prioritize well. We have to leverage the external parties, our principal core application vendors. We have a lot of partnerships with fintechs, but we do a really good job there, and we're moving the company to be a digital-first bank. I like the progress there.
One of the advantages you have if you're not super big, you're not in the mega bank weight class, is that you can be more nimble, and you can move faster, and you can stay focused on the things that really matter. You know, scale does help to some degree. Doing this New York Metro play and picking up another $30 billion of assets, I think is a positive. We don't feel compelled to have to run out and do more deals to stay competitive. Was there a second part of your question, John?
Well, it was just, do you believe you need a national presence i ncluding some different?
Yeah. There, I think we have a pretty unique opportunity because we have a deposit franchise that's national with Citizens Access. We do have consumer lending activities that are national. We've basically gone to market in kind of a product siloed fashion without a fully comprehensive platform that allows us to deliver a full range of products and services to customers. That's been really our focus, and we've put it under the umbrella of national expansion. We think there's a really good opportunity to migrate to a cloud-based digital platform that delivers great customer experience, and then leverage that to target specific, very highly specific customer segments where we think we have a right to win.
When we look at what we do really well in our regional core footprint, that's mass affluent customers, particularly young professionals. We have a great offering there. It starts with our student loan refinance product, and we've wrapped a bunch of things in around that. We think we can target that segment around the country once we pull this all together, and make some real headway. What goes with that is, you know, right now we're largely all digital with that national play. We will pick up some branches in the Washington, D.C. area when HSBC closes and some in South Florida.
That'll give us an opportunity to go digital first into those markets, combined with a light physical presence and do some test and learning because there may be other attractive cities around the country, where we have a concentration of customers or colleague base, so we have more brand visibility where we might decide to open some branches and then see how that could augment our push to really attract those customers and gain primacy with those customers. A lot to play out on this, but it's very exciting. I don't know, Brendan, if you wanna add anything to that.
Well said. The color as it ties into scale, for me is while we don't feel like we are required to get scale, I think the digital first world is providing an opportunity to scale distinctively with revenue. My opening remarks, as part of our call script, you see us going from 3 million customers to 6 million customers since our IPO. I would argue that in a pre-digital world, that was not possible without M&A activity, and we've got a demonstrated track record of scaling our consumer business organically.
That's what you should think about as we bring together all our product capabilities nationally, is how do we get scale and provide distinctive revenue opportunity without necessarily needing to do a big M&A acquisition. We have confidence we can do that. Obviously, we're supplementing that with HSBC and Investors, but, you know, really we think we can get great customer growth and deepening organically. The big question is, do you need physical presence over time and what does that physical presence look like? Can you run it with a thin network, to Bruce's point, around piloting in Washington, D.C. and Florida and then potentially other markets over time. All paths lead to the next 18 months or so are really building on our exceptional mobile-first digital platform nationally, and then we can start to think through our distribution opportunities over time.
Okay. Okay, great. Thanks for taking my question.
Your next question will come from Gerard Cassidy with RBC. Go ahead, please.
Good morning, John. Good morning, Bruce.
Morning.
Hey, Gerard.
Bruce, I share your bullishness on the outlook for the industry and you folks as well, and you presented it very well today. At the same time, we're always looking over our shoulders. When you guys sit around the conference room table to talk about the outlook, what are some of the risks that you have identified that maybe could kind of delay or interrupt this bullish outlook?
Yeah. To me, Gerard, it's usually around the macro would be the principal risk. As the macro goes, it certainly has a big impact on bank results. It looks like the kind of Omicron wave is not as lethal as feared and it hasn't interrupted business and commerce and people's behavior as much as it could have, as much as prior waves did. I put that as a tick in the plus column, although you never know what could happen later on over the course of the year. I do think the Fed has a fine balancing act to achieve here in bringing inflation under control. Inflation is really something to be feared and the Fed is gonna aggressively combat that.
Hopefully they apply the medicine in a good pace with good kind of forewarning and the market adjusts to that, and it doesn't kind of snuff out the signs of a good recovery. We think that GDP could grow at 4%, but what could happen if the market doesn't respond well to those rate increases or if the equity market falls a bit because of that. That's another thing. I think the fiscal situation seems stable at this point. You know, it's gonna be hard, I think, to pass more legislative initiatives that increase fiscal spend.
I think the spend that we have built up from prior rounds of fiscal stimulus is sufficient to carry us through. Anyway, those are some of the things that we watch. I still feel that the fundamental underpinning is very good and the credit outlook is very good. I think there's a strong probability that this turns out to be a good year, but there's always that tail risk that stuff could happen, and that's the thing that we watch carefully.
Very good. Thank you for those insights. Just to follow up, John, on the guidance, the non-interest income, I think you highlighted that you expect the mortgage fees in 2022 to be weaker than 2021. Correct me if I'm wrong there. More than offset by the strength in capital markets. What's your outlook? Because the capital markets number, as you guys pointed out, was extraordinary in the quarter. I assume you're not expecting that to be a run rate, but can you give us some color on what you're looking for in that capital markets line in 2022 versus 2021, and also the mortgage banking fees?
Yeah. I'll start off and turn it over to Don and Brendan if they want to add any further color. I mean, I think we had an extraordinary quarter in the fourth quarter, taking share. You know, it's kind of, you know, climbing the league tables, and it was a result of multiyear kind of meticulous investments organically with some fee-based bolt-ons that are coming together. Frankly, haven't really fully achieved its potential in some respects in terms of synergies from the deals that we've done, et cetera, that are going to contribute in 2022.
I'd say that the momentum and the backdrop is still strong. Bruce mentioned that the macro is one of the areas. As long as that keeps going, we do see some very solid momentum in the capital markets business, M&A and loan syndications were the leads in 4Q, and the pipelines look very good into early 2022 in terms of what we can see there.
I'll make a comment on mortgage and then maybe just see if Don and Brendan want to add. I mean, on mortgage, I would say the way to think about that is, it'll be down. I still think that given the investments we've made and the share that we've been able to take, we'll be above pre-pandemic levels. So the 2019 base year. I think 2022, you can think of that as being a year where we'll solidify, normalize a bit in terms of volumes. And, you know, say that, you know, maybe the market's down 30%, but our volumes will be down less than that. Margins are still a bit under pressure, in particular in the third party space in production.
That is meaningfully offset by what's going on in the servicing side of the business, where you see continued increase in UPBs for us. As the rate rise is starting to take off here a little bit, you see lower amortization. You put all that together, and you're going to have continued contributions from mortgage that will be greater than pre-pandemic. Maybe just turn it to Don if he has anything else to add.
Yeah. My perspective is assuming the markets stay strong, and we expect them to stay strong. Think about relatively low interest rates, lots of liquidity, and a reasonable economy. That's a great backup for continued deals. You know, we saw a lot of things try to run to the finish line in the fourth quarter due to potential changes in tax laws. I have to say, our pipelines are as high as they've ever been as we roll into the first quarter, and we expect those to continue to build. The other thing I'd just give you perspective on is we've got a diversification of revenue streams now in our capital markets business, and that is furthered by JMP, which moves us into the equity business and some interesting industry verticals.
Then we have DH Capital, which should close sometime in the first quarter, maybe early second quarter, which will give us incremental opportunities. That's only just beginning to be realized. The thing that's really driving the fee lines is we're playing multiple roles on every transaction or lots of transactions now. Not only are we advising, but we're also financing, and we're capturing the wealth business. There's a lot of incremental, you know, very good cross-sell and a lot of value-add for our clients. It feels very strong.
I think we've got an increasingly strong reputation with the private equity community, particularly in the middle market space, as we show them these interesting opportunities and we execute well for them. It feels very good. What the exact number is going to be is very hard to tell. Sitting here in the second week of January, I'm pretty optimistic about what the year is going to look like.
On mortgage, I'd just add that, obviously, at a high level, as you all know, mortgage is a natural hedge against the interest rate environment for us. While in many ways this cycle is a lot like other cycles, the difference is that it was exacerbated significantly. You got a much bigger pop just given how quickly everything came at us in COVID, and you got a steeper decline. Having said that, John's point, we feel much better positioned than pre-COVID levels in 2019. I think you'll see in our results in 2022, despite us and the MBA projecting the market down 30%, we should outpace our performance in 2019, and that's with the backdrop of margins at historically low levels.
You know, I think the question for us is how much better will we be over time than our 2019 pre-COVID run rates? A lot of that will have to do with how quickly margins re-normalize as capacity leaves the system. We're starting to see that now as rates tick up. Lenders are starting to shed capacity. We have not yet seen margins stabilize or certainly turn around. But we expect that to happen at some point. Question, does that happen in the first half of this year, second half of this year? We'll see. But we feel very good that the underlying strength in the business is significantly better than 2019 levels.
Let me just close and give everybody a shot here for the comments to your question, Gerard. If you just think about the long term, you know, you know, amplifying Don's comments about where we're positioned, the commercial bank and capital markets in particular feel really, really good about what we've built out and the secular transfers in big private equity pools of capital. They're increasing their ownership of U.S. companies, and we're very well positioned to cover those companies and provide services to them. With the big middle market and mid corporate space that we have, we have an opportunity to connect the intermediation of capital from private equity to corporate America.
That's a trend that I think is going to stay in place for a long time, and we're extremely well positioned to capture that and drive revenue growth. We like what we put together, and I think we're still scratching the surface of the potential of really gaining the synergies that come from what we've assembled. To follow up on Brendan's point, it was always important for us to really get a profitable and highly respected and good mortgage business in place because if we want to be, in our consumer bank, a trusted advisor on somebody's life journey, the mortgage is incredibly important product to individuals. We've now accomplished that.
Feel good about what we've done in the capital market space and what we've done on the mortgage space. It's been a combination of organic. In investments as well as inorganic acquisitions. The one place that we're still kind of short of the mark that we haven't moved, so to speak, to the other side of the river and get where we wanna get to is in wealth. It's not for lack of trying. We've made significant organic investments there. We've had one successful acquisition with Clarfeld Advisors, which has gone very, very well. We're still in the hunt to see if we can put more together there to get us where we need to get to.
Great. I appreciate all the insights. Thank you.
Your next question will come from Terry McEvoy with Stephens. Go ahead, please.
A question for John. Could you just update us on the size of Citizens Access? Maybe how do you best use that product in a rising interest rate environment? Then the HSBC online platform, will the conversion there occur on the same pace and same timeline as the bank itself?
Yeah. With respect to the first question on Citizens Access, yeah, we're in that kind of $4.5 billion-$5 billion range. Most of that is we've had some runoff in terms of the CD book.
Intentional.
Yeah, intentionally. Yeah. I mean, so when we went out with that was a balanced approach in terms of of a savings and CD offer, and that was extremely successful in the third quarter of 2018 and has really served us well. We're building on that platform. We've launched a national storefront on the back of that platform, where we've added the ability to start bundling mortgage and education loans in that storefront when you log on to Citizens Access. Over time, that will be, you know, again, a big driver of how we are distinctive with our deposit offerings and being able to broaden out that product set. The second half of the question was on HSBC.
HSBC coming across and timing.
Yeah. That timing is mid-February. We feel really good about that. I think that's almost $8 billion of deposits in the middle of February. That's gonna add a lot of cash to where we are at the end of the first quarter. That really should be thought of though in the context of the Investors acquisition where we looked at those deals as one sort of entry into the New York Metro, not just strategically, but also financially. Because when you put those two banks together, that's around an 80% or so LDR combined profile. Those deposits are there to be thought of in the context of the overall Investors and HSBC acquisition.
Yeah, Brendan, maybe you could just kind of carve out the online aspect of HSBC, because that was another thing that really was intriguing when we had the opportunity to buy that business.
Yeah, absolutely. It does help us further accelerate our national scale with our online deposit platform. To the question, the timing on the online integration will be the same exact timing as the core branch network acquisition in mid-February. That will all happen together. There's a few small differences with the HSBC online platform from our Citizens Access. One is that the interest rates are actually a lot lower. They're at 15 basis points versus our Citizens Access is at 40 basis points. One of the reasons why they're a little bit lower is that a handful of those customers have some minor connectivity to their physical channels. We're maintaining that and making sure the customers have access to our new distribution footprint where they happen to be in our franchise.
You can start to see the physical and digital worlds coming together in this strategy. We view this as a significant accelerant to our national expansion plans and provides a great pool of customers for us to ultimately deepen with as we, to John's point, we've expanded the storefront with mortgage and student loan refinancing. As I mentioned in my opening remarks, we're gonna add more products over the course of 2022. This is fertile ground for revenue growth that we did not put into our deal model.
Thank you. Just a quick follow-up. Can you just remind us the impact on service charges and fees in 2022 expected from the rollout of the Peace of Mind product, the Citizens Peace of Mind?
Yeah, I can say that. The way to really think about this is opportunity cost of not reinflating. The Peace of Mind program really is a 24-hour grace. It's a third or fourth move we've made in addition to a handful of other moves, including a student account that is completely protected from overdraft. We've got a $5 overdraft pass. We've got a once a year oops automatic forgiveness for customers in certain products. Now we've introduced Peace of Mind, which is essentially a 24-hour grace period and a great customer experience for all of our customers to empower them to avoid unnecessary fees. We think the payback on this is quite strong.
It'll be about year three where we break even and turn the corner for the revenue benefits to offset the fee shortfall that we're giving up. Really we expect the overdraft line to be flattish going forward. You know, it would have cost, we would've been able to get a pop of, you know, call it $8 million-$10 million a quarter at a normalized market where stimulus benefits burn down. We think it's the right thing to do.
About a $40 million opportunity.
About a $40 million opportunity cost annually, but that more than offsets over time with revenue benefits. You know, to John's comment, we've already seen a significant early indicators of positivity coming from our customer base. Call center and complaint volume are down about 40% in this category. Our NPS score, particularly with under 40-aged customers, has really started to increase right away. We just rolled this out in October. We're very, very pleased about it, about the early behavioral impact from our customer base.
Great. Thanks, everyone.
Sure.
Okay. It looks like that's the end of the queue here for Q&A. I know it's a busy day with other banks reporting, but once again, I wanna thank everybody for dialing in today. We appreciate your interest and your support. Have a great day, and everybody stay well. Thank you.
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