Next up, very pleased to have Citizens Financial, from the company of Chairman and CEO, Bruce Van Saun, who's been a longstanding participant of this conference from his days at Bank of New York to Royal Bank of Scotland, and since the IPO, I think every year, or almost every year with Citizens. So Bruce, thanks for joining us today.
My pleasure, Jason.
If we could just put up the first ARS question, as we get this kicked off, and again, we'll ask these for all the companies. Bruce, maybe the best place to start is just big picture. Just talk about your kind of outlook for the economy within your footprint. You know, what is the, you know, what kind of sentiment you're hearing from your clients, and what's your outlook kind of end of this year into next?
Yeah. So I think the economy is holding in pretty well across our footprint, and most of our corporates have had reasonably good years. They're not playing full offense yet, so I think there's still uncertainty about the timing of rate cuts. You know, overall health of the economy is certainly slowing and unemployment's up a little bit, but nonetheless, it's still a decent backdrop for companies to do well, and we focus more on kind of mass affluent and affluent customers, and there's a lot of those across the footprint, and they're still doing reasonably well individually.
I think, provided that the Fed starts the cutting cycle here, I think the economy can have that soft landing, and that can carry us into a little bit of momentum as we head into 2025 .
Got it. And I guess within Citizens, you guys have several kind of unique, strategic initiatives going on. I guess, first off, like, how do you manage all that? If I kind of look at you versus other regional banks, you probably have, like, six or seven big things you're working on, and some of them have one or two.
Yeah. So, I'd say we've been. We set a course for ourselves, and, you know, over the ten years since the IPO, I think we've followed a strategy to really transform our consumer bank to really position the commercial bank to succeed in an era where private capital was growing rapidly. And then we also were trying to figure out a way to really scale up a wealth offering and private banking offering. And, we just stayed patient. We put the foundation blocks in place first, brought in a strong board, a strong leadership team, and focused on putting good technology, good risk management, good people program in place, attracting talent.
And then, you know, I'd say when opportunities presented themselves, like the chance to buy HSBC's East Coast branches and follow that quickly with Investors Bank, we were able to really fill out the footprint in the Northeast and address that so-called donut hole in the New York metro region. And then when First Republic failed, the opportunity then to take some of the talent that didn't want to stay on the JPM platform and bring them over to Citizens and really scale that up made a lot of sense to us. So, I think it's been systematic, and we're not trying to bite off more than we can chew. We didn't do a lot in the early days other than work on the foundation.
But then as we started to mature as an organization and get the people in place and the technology and everything else in place, we gained confidence that we could step up and be opportunistic. And I'd say we're executing very well. That's been the principal focus this year, focus on execution, grind out decent financial performance in an okay year, but we're not getting a lot from the market, but we're hitting our numbers, but position ourselves well for the medium term by driving execution of these initiatives.
And maybe just delve deep, deep more deeply into some of them. You mentioned, you know, the private bank build out. You know, you set some goals. I think it was $9 billion in loans, $10 billion in AUM, $11 billion in deposits, for next year. For next year, 5% accretion for next year. I think breakeven in the back half of this year. Just maybe talk to how are things progressing, you know, against your expectations and, you know, just how you feel that overall build out?
Yeah. So we're on track on all those financial metrics. So I think we're seeing a very good customer flow onto the platform. And you know, I think our loans at $4 billion. We've been ticking up slightly over $1 billion a month a quarter. We have the opportunity through some lift outs to really gain momentum in the wealth side, in the AUM. I think loans started off a little slow, but I think we're starting to see that pick up, and as rates go down, I think you'll see that pick up further. So feel really good about our ability to deliver the business and the quality of the people that we brought over is really superb.
Seeing them in action and how they serve their clients and deliver that pain-free banking experience. We still have a little work to do to get to full white glove service, so you can't just flip a switch and that happens. Working hard to build out some advanced technology offerings and other kind of operational processes that we can make sure we get to the bar and really delight the customers. So far, everything's going well.
... Got it. And maybe on, you mentioned HSBC and its building up the metro New York market. Just how do you feel about the state of that franchise? Do you have enough scale to compete there? Obviously, it's obviously a big market, a lot of entrenched players.
Yeah. So again, that's another one. We've put some of our best people aligned against the opportunity, and when you start with good people at the kind of regional level overseeing it, they attract more good people. And so we've infused a lot of talent into the region. It's expensive to operate in this region. The marketing budget is significant to actually increase your brand awareness. But we've continued to sustain that, and we're seeing the results. The good news is, we're seeing very significant household growth, very significant deposit growth. And you know, so that all feels really good, and the opportunity to further deepen with those customers and gain more cross-sell, particularly into wealth, is right in front of us. So we see lots of opportunity here.
And then I guess on your BSO initiative, balance sheet optimization, just kind of where are you in that kind of runoff process? The most recent earnings call, it sounds like commercial real estate downsizing was kind of more of a priority. Did the SCB results drive that? And just kind of how you're thinking about that now?
No, I, I think we've had that view all along after we did Investors. If you buy banks in that size, 30 billion bank, it's gonna come with a fair amount of commercial real estate on the left side of the balance sheet. So we went from being kind of underweight, CRE to overweight, following that transaction. There's not a lot of liquidity outside of multifamily, and so, we're kind of biding our time a little bit. We're starting to see some pay downs and start to bring that down, but that's being offset by some of the construction draws. But I think if you look out three to five years, we can run kind of commercial real estate down, 7-8 billion-ish. We'll make some room for the private bank to grow back into that, a billion or two.
So, anyway, that's kind of a medium-term. That's not going in non-core. That's just something that we're gonna manage into kind of that medium-term balance sheet restructure. What we have in non-core right now is really consumer assets. So fully exited the auto business, and then some of the flow agreements we had with SoFi and Affirm, putting those into runoff. That's going really well. That's about $1 billion a quarter, that's dropping off, and you know, that allows us to pay down higher-cost financing. It's accretive to our NIM, and it frees up capital that we can kind of use to grow the private bank. So I think that's really powerful right now, that we have that in flight.
We're doing also in the commercial C&I book, you know, where we tried to expand a bit into the mid-corporate and some new relationships. If that wasn't successful in allowing us to move over and become the top bank or near the top bank, we're just exiting some of those relationships as well. So we probably exited about $3 billion in C&I over the last three years, call it $1 billion a year, and there's probably another two years of that to go as well. So just being selective. A lot of times, sometimes when you go back and say: "We're gonna exit the credit because we're not getting enough cross-sell," they say, "Well, we don't want you to exit the credit," and so you end up getting the cross-sell. But anyway, we've been managing that process well.
So I do think being very disciplined about in this environment where you're playing where you're allocating your loan capital making sure it's to deep primary relationships. It's kind of been a game changer when the Fed went from QE to QT and deposits now are more dear. You've got to really rethink your strategy and make sure that you're growing in areas where you can be deep and you kind of have a right to win.
You mentioned the word discipline, and you've had your, you know, TOP or Tapping Our P otential expense program, and you're finishing up nine. I hear you're working on a number ten. But I think it has generative AI kind of typed up within it. But maybe any early previews or thoughts on that?
Yeah, no, you know, we haven't announced a program that's been less than 100 million, so we kind of put a marker out there and come up with ideas from inside the company and talk to consultants and figure out, you know, what's kind of on the cutting edge of ways that folks are either running the bank, their bank more efficiently or serving customers better to generate incremental revenue. So we have that full on right now, and so stay tuned. Usually, we will give that outline and the amount that we think we can achieve either in the third quarter call or in the year-end call when we get to January.
Before we dive into.
Let me also say that the TOP 9 is in hand, so we've actually executed that very well.
Noted. I guess before we delve into the details, the environment and rate expectations have changed a little bit since you guys gave guidance, in July. Maybe do you want to update us in terms of how the quarter's going and just what you expect the rest of the year?
Yeah. So I'd say we're still comfortable with the quarter and the full year guides. But you know, you make those calls based on the assumptions at the time, the outlook at the time. And so that's moved around a little bit. So I'd say there's always gonna be some puts and takes. One thing that we're seeing on NII is that you know, we expected to have growth in commercial picking up and the private bank picking up. You know, private bank is an idiosyncratic story to us, given the growth in the business, and we are seeing that. So that's a tick. But then when we look at commercial, you can see that commercial H8 data is a little softer than expected.
So that's the one thing that I would say, you know, we're managing deposits well, we're managing the NIM well, but we're seeing a little modest drop in what we expected to see on the commercial loan side. I think that is more temporal. That hopefully picks up back up in the fourth quarter and carries into 2025. But that's one thing. I'd say on fees, pretty strong overall, but you know, when you have capital markets as a big revenue source, you never know exactly what closes in a quarter and what pushes to the next quarter. So we're working on a lot of stuff. We're very busy. We feel good about how the business is positioned, but kind of we'll wait and see what gets done and what pushes.
Expenses, you can always expect us to do well. Credit, there's no surprises. So generally, following the contour that we expected. And again, when we look out to the fourth quarter, one of the reasons this quarter we kind of moved sideways a bit on the EPS is we have these forward starting swaps that kicked in on July 1st. This is the last batch. So when we get to the fourth quarter, some of the good dynamics around the net interest margin and net interest income, we have the absence of that, but then we have the positives of front book, back book. We have the positives of, you know, the lower rates could benefit the swap drag. So there's some good things, I think.
And then seasonally, in the fourth quarter, it's usually a big fee quarter, particularly in capital markets. So, theory around, you know, fourth quarter being a, kind of nice lift quarter is still intact as well.
A lot in there, and we're going to need to how you're going to pick it apart. Let's, we'll start with start with loan growth. But, you know, I guess loans were down in the first quarter because of, you know, runoff from non-core. Core looked to be little changed, consumer up, commercial down. You know, it just seems like you have kind of multiple opportunities. You talked about the private bank. Maybe just talk to kind of where the opportunities to grow are, and at what point do you think kind of the organic initiatives you have can overtake the balance optimization kind of drag?
Yeah. So we expected that in the, in the second half, and I think you'll probably see that, again, more robustly in the fourth quarter. But, we're not going to chase it, Jason. So like, you know, I think we're staying disciplined, and, we've passed on some opportunities if we didn't like the, structure of the credit, et cetera, for some of the commercial deals that we were working on this quarter. So, anyway, I think what we would expect to see, what we had hoped to see already in the third quarter was that private equity got more active, and there were kind of more opportunities to lend around that. There's, you know, subscription lines, there's, the securitization lines that we have, and then there's the new money deals.
If the deal flow picks up and there's more exits and there's more entry and money going to work in private equity, that's kind of where we haven't seen that tick up yet in a material way. But I do think there's lots of dry powder there. There's lots of conversations happening, and I think we're particularly well positioned to benefit from that when it happens. But we'll just wait and see.
Got it. Maybe put up the next ARS question, which is the deposit beta question. And Bruce, I kind of put it to you. You know, last quarter, deposit balance is relatively stable. Interest-bearing deposit balance actually came down three basis points. Maybe kind of just talk to kind of what's kind of current trends within deposits on the kind of this tightening cycle. I think Citizens outperformed on deposit beta. I think it kind of surprised the market to the upside. Just maybe kind of, you know, how you think about the beta, deposit beta in the coming quarter.
Yeah, we're very pleased. I talk about, you know, transformed consumer bank, but we spent years basically moving away from kind of savings and bank and thrift heritage, which was rate-led, into really serving customers, having full value propositions, moving up market, banking mass affluent, affluent customers with bigger checking balances, and so and the data we have on our customers, the offers we can make to customers been years of work, but to actually kind of get to the first half of the year, and of the 10 superregional bank peer group that we benchmark ourselves, we're kind of number three in terms of beta, being lowest, and then number three in terms of cost of our interest-bearing deposits, again, being lowest, so that feels really good.
And part of that is associated with the balance sheet optimization. We're not forcing loan growth, so we're making sure we have a really rock solid left side of our balance sheet, which allows us to continue to be disciplined around how much funding we need and how we take that in. And that's the game plan. That's the game plan through the rest of the year, is to continue to be very disciplined and, you know, not paying up for deposits, trying to focus on the mix of deposits. We're getting a tailwind from the private bank because they're bringing in significant deposits, $4 billion at the halfway mark of the year. And, you know, over 30% of that is non-interest bearing.
So we suffer a little bit some of the same impact that others in our peer group, other banks are suffering from the migration from low cost to high cost. But when you have turned on a new faucet and it's flowing in deposits, and it has a high percentage of non-interest-bearing, that's helping that performance as well.
I guess kind of marrying the loan and deposit discussion, maybe just kind of summarize it with NIM, but you know, down about 2% in Q2. I know you talked about a 1%-2% decline in Q3, given kind of that last step up in swap costs and then kind of the bounce in Q4 to get you to, like, down 9% for the year.
Yeah.
Just, I mean, how do you think about those numbers, just given - I appreciate the rate backdrop has changed and,
Yeah, I mean, I think we're in the zone of what we guided to. So, maybe in the third quarter, it may be kind of at the lower end of the zone just because of the volume driver, but it's not NIM related at this point. So we'll see. We'll see how it plays out.
Got it. And then I guess maybe bigger picture, and I realize this is looking out, but you have a lot of kind of moving pieces in NII, with the swaps and the BSO and the repricing and the, you know, private bank build-out. So, you know, as we kind of build out our 2025 models, just maybe talk to how you're thinking about, you know, NII for next year. I know you've talked about this year exiting the NIM, you know, above 285 and then kind of 325 to 340 over time. Are those numbers still in the ballpark?
Yeah.
You know, when do you think you can get to that three and a quarter, three forty timeframe? Before Bruce answers, we could put up the next ARS question. But why don't you go ahead? I don't want you to bias the audience.
Yeah. Okay, should I wait to answer to let you answer first?
No, you go.
Before I-
You go, and then we'll see what you say.
I still think the, you know, landing zone of being in the 3.25-3.40 is relatively assured, given the drag we're suffering today. You know, $900 million from the swaps dissipates with time. Some of that's already been terminated, and we're just taking the accounting hit until the end of the maturity of those swaps. The rest of it will just close out. So by end of 2027, we'll capture all of that, which is a real positive. You know, away from that, the balance sheet is asset sensitive, so you give a little bit of that back. And we're looking for opportunities to further hedge the out years in 2026 and 2027.
But all the scenarios that we run, whether it's kind of a flattish and a slower decline or a more accelerated decline, we think we'll still be in that kind of $3.25-$3.40. Obviously, a little slower kind of pushes you higher, a little faster pushes you a little lower. But that's still from where we are, you know, last quarter in the kind of mid-$2.80s to make that ground up by 2026, 2027, getting to $3.25-$3.40 is a lot of earnings power. And that basically means we'll have meaningful positive operating leverage over the coming three-year period and a meaningful lift in our EPS and our ROTCE.
Makes sense. Maybe kind of further fleshing out on the fee income side. You talked about capital markets earlier, but you know, wealth and card fees were also pretty strong in 2Q. Payments business saw momentum. Let me just talk about some of the other fee drivers.
Yeah, I'd say, we feel really good about where we are with wealth, and we brought a new head of wealth across recently. And he's got a building out his team and feel good about the momentum we have in that business. Same thing with card. We've kind of consolidated debit and credit with Mastercard, and so we're seeing nice momentum in some of the new strategies we have in card. You know, we had a few cleanup items and other income last quarter, so we should see kind of bounce back there. I'd say the one... So, so generally, all line items I feel pretty confident about in the quarter and the rest of the year.
Mortgages, we're kind of treading water a little bit, I would say, in mortgage. Just even though some of the production stats are starting to tick up, you have to look at the servicing and the mortgage together. And so, you know, that business now has been scaled to a level that it doesn't have outsized impact, the way it had two, three years ago. It was good. It was bigger when rates were coming down, and we captured kind of a windfall amount of revenues, but, we've taken time to rightsize it. Over the last couple of years, we've exited the wholesale business, and we've kind of refocused the LOs around branch, serving branches and serving existing customers.
Anyway, it's a business that I think will perform in line with the market, but I don't expect to see any big bounce here in Q3.
Got it. And then maybe just on expenses, just talk about, you know, how you're managing expenses in light of this private bank build out. You talked about the return about private operating leverage in Q4. Is that still on track? And just how you're kind of approaching this whole 2025 budgeting process.
Yeah. So yeah, I mentioned, I think Q4 is gonna be a strong quarter, with, you know, so getting some lift from volume. We'll still have the private bank, and I think we'll hopefully start to see, commercial come through. And then we have the absence of kind of a impact of new swaps. So, kind of the basic dynamics will, on NIM will be positive as well. And then fees should be strong in the quarter. So, you know, and we're gonna continue to do a good job on expenses. So that will translate into positive operating leverage in Q4. And that then, you know, the comps for 2025 should also be positive.
Some of those same dynamics around NII, around fees. We expect that private equity will get more active in 2025 . That'll help with both commercial lending as well as fees, capital markets fees, so that should be strong, and then we'll continue to get real lift from the private bank, so going from the lines crossing to get to finally to break even here likely in the fourth quarter. We're getting close, but I think we'll have it in the fourth quarter as we promised, but then next year, getting to that 5% accretion, that's a really nice lift, so a lot of good things to look forward to in 2025.
You know, when you go through the budget process, I think all banks experience this is hope springs eternal. It's a chance to invest. Everybody wants more investment dollars and this, that, and the other thing. A big focus always is you know, how do you prioritize and kind of rationalize all the demand for the CapEx and the technology dollars? I think we've done a really good job of that over time. One thing I'll point out is that we're migrating our infrastructure to the cloud, and we're doing it at a very fast pace, and by the third quarter of next year, we should be fully into the cloud and out of our data centers, which has lots of benefits, both financial and then in terms of how we're operating.
I think we're on the leading edge of the regionals in terms of being able to do that and execute that. So some of the spend we have goes towards kind of long-term foundation blocks like that, and others goes towards better serving our customers and some of the platform improvements that we're making.
I guess kind of within fees and expenses, you previously talked to, I think, fees up 6%-9% for the year, expenses up kind of 1%-1.5%. Is that kind of still kind of your-
Say that again.
Fees up for the full year.
Yeah.
You're talking about fees up 6%-9%, and-
Yeah, we're not coming off our broad guide, so we're, we're good.
Just making sure. Maybe put up the next ARS question as we kind of shift gears to just credit quality. You know, charge-offs have been, you know, kind of broadly stable. Just maybe talk to kind of what you're hearing and seeing, you know, overall credit quality.
Yeah. So I'd say the kind of isolated area that we've had most of the pain in terms of the charge-off line this year has been CRE office. And, you know, it's just a long workout process that kind of started in the middle of last year. We're kind of working through it. I think it'll continue to be with us into 2025. The good news is, I think we have it heavily reserved. I think we have our arms around where the issues lie, and we have good dialogue with the borrowers. We're working on kind of restructurings where we can, so we-- it benefits the borrower, and it benefits us in the long run. But we have some really good people dedicated against us.
If you, you know, move away from just that and you look at the rest of the portfolios, C&I's been pretty solid all year, so not any discernible trends or hotspots that we're seeing, and then also in consumer, it's generally just following a retracing back towards kind of pre-COVID levels. No real hotspots. We did have a bad vintage in credit card, but fortunately, our credit card business is quite modest, and so we're kind of just burning that through, but anyway, feel really good about where we are on the consumer side as well.
Yeah. You, you mentioned office, which you've been working through. I think you have 11% reserve in that portfolio, plus you've, you know, booked a fair amount of charges. Is, you know-
Yeah.
That still the right level? And just, you know, how does that process play out?
Yeah, I'd. You know, so if you add what we've charged off to what we have reserved, we're getting up towards kind of the high teens of the beginning balance when we really started this workout process. And, you know, could that tick up a couple more percent? It could, but what we've been doing is kind of being in a pay-go mode. We've just charged off and not drawn down the reserve.
I think one of the key questions is, when do you think you're at the peak and you have visibility into we have our arms around the problem completely, and then we can start to draw down that reserve, and then you can start to see improvement on the credit line and the P&L because your provision number will be coming down, even as you continue to charge off some of those credits.
Let me put up the next ARS question as we shift to capital. But just maybe how you're thinking about capital near term and looking out, you know, ex-AOCI, CET1 around 9%. AOCI losses feel like they're going to come down quite a bit this quarter. I think you talked about buying back $250-$300 million worth of shares this quarter. It sounds like you have expectations for loan growth to come back at some point. But just, you know, how do you think can buyback persist, and just how are you thinking about-
Yeah. I think, like, big picture, I always wanted to run a conservative capital structure to have set one at the higher end of our peers. And I think the wisdom of that when we had the, you know, what hit the fan last year, you know, that was very prudent that we, we had plenty of capital, and there wasn't that question. We also, I think, had, not had as big a securities portfolio as some others and took in a lot of deposits and invested at low rates, so the AOCI drag kind of wasn't, as crushing, as it was for others. So both on a, at a pre-AOCI and post-AOCI, we were typically kind of one or two. M&T was up there, we were up there. Other people are building, to get up there.
But kind of the advantage of that is, you know, the economy is cyclical, banking is cyclical, and so when you go to the down parts of the cycle, if you have that capital strength, you get to be opportunistic and play. So we were invited in to bid on the failed banks, which we did. And while we didn't win at the end of the day, we kind of won anyway by being able to attract that talent. And we had the capital to say, "We're gonna bring in a hundred and fifty expensive people. We'll take a hit in year one when we're doing that," but we had plenty of capital to absorb that and allow them to come over and bring their business and grow their book on our platform.
So anyway, just to make that broad point, we've run conservatively. You see the benefits of that when you go through cycles. And so we're managing now this year, kind of we have a range of 10%-10.5%, which we upped in response to what we saw last year. And we've been running ahead of that. We've been running at, say, 10.7%, and still able to be in the market to buy back our stock because we're still making good returns. And we're not using a lot of capital for loan growth because we've been doing the BSO and kind of running down loans.
I'd like to say that particularly where the stock was trading in the past year, I'm a buyer all day long on that stock, and I'm still a buyer where it is today. We would like to always first prioritize organic loan growth, but pay the dividend, make sure you have a good, healthy dividend. Organic loan growth next, and then buy back your stock, or if you see attractive deals that kind of pencil out comparable to what return you get from buying back your stock, you can put your capital to work that way.
Looks like the audience likes the buyback notion. You know, Vice Chair Barr is supposed to speak tomorrow on kind of what's expected for Basel III. One of the things he's rumored to say is Category IV banks like yourselves have the ability to kind of opt out of the RWA inflation component of Basel Endgame. Does that kind of impact your thinking at all?
Look, I think when the proposal was full on, most regionals were kind of hit with a 2% or 3%, a very modest increase in RWAs. So it was manageable. It was. It just wasn't the right thing to increase risk-weighted assets on things like low and moderate low down payment mortgages or small business loans and things like that. So we were against it in principle because of the economic impacts of it, but it, you know, it wasn't as big a deal for us as it was for the bigger banks. So if it's reformed, it's going to benefit the bigger banks. They'll probably still go up. You can guess what the scuttlebutt is, but it's some percentage, but a lot less than it would have.
For us, if they say, you know, we are exempt or we can opt out, it probably means we would have got a credit. So we won't see the credit, but we'll at least not have anything that is really impactful to us, and hopefully in some of the ways that they consider refining RWAs on credit, they do that, they listen to what the industry feedback was, and they clean that up.
You mentioned the ability to access capital for attractive deals. It seems like the New York acquisitions have gone well, and just, you know, I guess Citizens as a whole have made great strides in the last decade. Just talk about kind of what is your appetite for kind of bank acquisitions and kind of take what you've done successfully and kind of export it to maybe additional franchises?
You know, what I've always wanted to do was make sure that we were never forced to have to do a deal to thrive, that we could have a standalone strategy that stands on its own. I like to describe the current strategy as a tripod with, you know, transformed consumer bank, best-in-class commercial bank, and aspiring kind of best-positioned private wealth, private bank. I think there's an ability to operate with those three legs of the stool effectively for a long time to come. I don't think we necessarily need more scale, particularly in commercial and the private bank. I think we're fine. I sometimes wonder about the consumer bank with all the money that the mega banks spend on their brand and their tech advances.
But I think if we prioritize our spend and we kind of deliver great service, personal service, we can still go up against the big guys toe-to-toe. We do it today, so we are in kind of Philly and Boston's very competitive markets, where all the big boys are. We're now in New York, and we're gaining market share in New York. So, if you run a great bank and really delight your customers, you can compete effectively. So, anyway, that's kind of where I am. Let's keep driving our execution. But, like we had a chance to do last year with the turbulence, to look at some banks or take on a big team that can help us further our strategy.
If things come down the pike, I think I have confidence that we can structure a good deal and execute a good deal, but we're not on the hunt for any deals at this point.
Got it. And just, you know, you talked to the 16%-18%, you know, ROTCE. Maybe just talk about the path to get there, and what are the key drivers, and is there kind of a time frame in mind, do you feel like you can get there on a sustainable basis?
Yeah, sure. So, you know, just the kind of the drag that we have from the swaps right now is costing us, you know, four or five hundred basis points of ROTCE. So we'd be kind of much closer to the 16%-18% once that burns off. So if you take that, and then you combine it with the power of these initiatives, and right now we're over-providing on credit, so we have a higher kind of credit cost than we would in the P&L, than we would see through the cycle. You don't have to do a lot of math, but you can relatively quickly, in 2026, 2027, get back to that kind of 16%-18%. I feel really good about that. I think there's good visibility and good confidence in our ability to deliver that.
Got it. You know, you mentioned, private equity a couple of times. You know, Citizens, I think, is a big differentiator for some of the regionals in terms of how it serves the kind of private capital market. Can you just talk to kind of, you know, your strategy and, you know, the benefits there, but there also kind of maybe brings upon some risks as well, so just how do you manage that?
Yeah. Well, I think we've been focused on the sponsor community, private equity, for a long time, and particularly the sponsor firms that focus on middle market, and so we know them well. We know who the really good operators are, who treats their banks well, et cetera, and we've continued to grow that. I think some of the bigger sponsors have come down into the middle market and had kind of new funds focused there, and so we've been able to expand the relationships we have. But we've stayed true to. You know, we're not big enough to really compete in the really big deal space, but in middle market, I think we're very well positioned.
One of the benefits we have, a corporate book of about 4,500 companies, middle market, probably, you know, 3,200, and maybe another 1,200-1,300 of mid-corporates. And there's a certain percentage of those companies that are going to sell themselves every year. And so being able to show deal flow to some of these sponsors is really value add. So if you have all the services, subscription lines, securitization lines, and able to do financings for these folks and handle some of their needs, like now with the private bank, we have a great cash management platform to actually serve the firms themselves. We, I think, become even more valuable because of that, M&A shop. We have an ability to show them deal flow.
Private equity is solid, and then over time, you know, private credit kind of became part of the play for these firms. Let's get into the market, and let's offer credit in a different way, where maybe we can offer more leverage than bank loan syndicates. We can offer more certainty than bank loan syndicates. Those private credit players, a lot of times they're part of the same complex that we already have relationships. We've built out relationships on that side with the same approach as to what are their needs? How do we really figure out how to make their strategies work? They need financing. We can offer financing. They like deal flow, same as the private equity guys like to see deal flow.
We arrange a lot of transactions. Sometimes, if the borrower wants more leverage, we can bring those private credit players in as partners, and continue to generate fees and become an important relationship to the private credit funds. So I think, you know, what we've built is really strong and differentiated versus most of our regional peers at this point.
Great. With that, please join me in thanking Bruce for his time today.