All right, everybody. Hello again to all of you in the room and on the webcast. So continuing on a very upbeat morning for banks, we have with us Citizens Financial Group, and with us, we have Don McCree. You all know him as the Chair of Commercial Banking. And Ted Swimmer, our new Head of Commercial Banking. Welcome, you guys.
Thanks.
Thank you.
So we usually kick off these firesides with a macro-related question, but I think your breadth and depth as a commercial bank is still a little bit underrated by investors. I do want to start there. So Ted, as I alluded to, you're transitioning into some pretty big shoes to fill right over there as you take over the business. And for those in the audience who haven't had a chance to meet you, could you give us a sense of how you and Don have evolved the business since the IPO and how more national the scope is of your middle-market-focused banking business?
I do want you to touch on the private equity and capital specialty that you built out and how your acquisitions of boutique M&A firms really rounded out your offering. I know it's a lot. No pressure.
Let's start with, I think under Don's leadership, we've built the best commercial bank in the superregionals set. We have spent the last really 10 years since Don's been here building out our products, building out our relationships, and building out industry verticals that make us a dominant force in the superregionals market set. We started originally as basically just 10 years ago, 11 years ago, around the time of the IPO; we basically had the ability to lend and to take in deposits and really didn't have an ability to transition with our customers.
Since that time, we've built out. We started with leveraged finance, building out leveraged finance, being able to do syndications, do bonds, things of that nature in the leveraged area, and then followed that up with bringing on more and more industry talent in sectors, and then had a series of M&A acquisitions of buying boutiques that have made us, in certain industries, the leading force in whether it be gaming, whether it be digital infrastructure, things of that nature. We've built that out. We have also continued to really focus on building out our client relationships. So, we used to be really a middle-market bank focused in the Mid-Atlantic, focused in New England, in the Midwest.
Over the last 11, 12 years, what we have done is we have hired a number of bankers to cover larger customers, and we've recently changed that from being more geographically focused to being more industry-focused.
Yep.
We have taken our franchise in the middle market and have expanded now into Florida, California, and New York City. We were resistant to do that for a fair amount of time because we never wanted to be just a middle-market bank which didn't have a retail presence or a or a different reason to be than than just the be middle market. We've always found that if we were in a sec in a region where we didn't have other things that go with it, you inherently wind up doing the more difficult deals.
You do it at the lowest prices to try to gain market share. But since we bought we started to take on all the First Republic bankers in California and Florida, we had a reason to exist in these places, and we've been able to build out those areas very well.
and in New York City, with the Investors and the HSBC branch acquisitions, we've built out a fairly good coverage effort in the middle market in New York City also. So we've been able to build all of that out, expand our geographies in the middle market. I think we were one of the earlier regional banks to accept the private capital universe as something that's growing. And starting in really 2014, 2015, we started to invest a lot of time and resources into the private equity universe, starting with just doing the natural LBOs and things of that nature, and now have been involved after our acquisition of JMP in 2021 to be able to cover them from an equity perspective.
We've linked our subscription line businesses, our lending to the direct Lending funds, investing in the BDCs, and now we're doing the equity, the bonds, and financing the private capital community, which has been a very good area of growth, and it's still a large avenue area of growth for us into the future. We take all of that, and we combine it with what we have spent a lot of time and effort doing, which is investing in our Treasury Solutions set. So every middle market company we bank, we push very hard on getting their Treasury Solutions business. That has. We've been doing that at a really good clip, and continue to build out. We've been able to get into the Merchant Services business with the non-bank Merchant Services. We're, I think, the dominant bank in doing that.
We continue now to figure out how to embed our private, our treasury solutions into the private capital community. So it's all kind of working well. And since we inherited the private bank or invested into the private bank, we have taken on this mantra of One Citizens, which means with every middle-market company we do, the M&A every M&A transaction we do, we're introducing our private bankers and private wealth to make sure we're getting the private and treasury business. And in reverse, they are introducing us to a number of customers we never had access to. So all in all, it's working very well. The flywheel's working. We've been very successful on buying a series of M&A boutiques, whether it be DH Capital, Trinity, Western Reserve, Bowstring. We've had great growth and industry dominance because of them.
And then JMP. has introduced us to the equity markets and biotech and healthcare. So I think we're in a really, really good position to take advantage of what we see as a very positive market, over the next couple of years.
So, you know, what do you think are the, you know, big factors that'll hit in 2026? But also looking forward, you know, what are the sort of the three-five-year accomplishments that you wanna check off?
So, most importantly, I have inherited a wonderful business through Don. And what we really wanna do is step on the accelerator now. We've done all this in the last four years, you know, really since the end of 2021. We've been in a kind of sluggish to weak, overall banking environment. There's been very little in the way of M&A.
There's been very you know, there's been very little new funding from banks to provide. We are starting to see a series of signs out there that will indicate that we are now on a much better trajectory than we thought we were on that we've been on in the past three years. So we're gonna continue to invest into our industry specialties. We're gonna continue to make sure that we have the best corporate finance M&A bankers in the industries we choose to cover.
We're gonna continue to expand into Florida and California into New York, make sure we have a very good product offering in those areas. We're gonna spend time on further deepening our product set. So we feel very good about what we're doing on the loan side. I think we're gonna continue to spend more time investing in the bond side of our business, continuing to build out private equity coverage, as that market continues to be stronger. And then a couple other things. We are gonna be investing more into our treasury solutions product set. Although I think we've done a really good job over the last 10 years, there are so many different areas you can invest in that business, add customers that we had never seen before.
We've also spent, and I should have said this earlier, a fair amount of time re-envisioning our balance sheet. So we have continued to pivot away from our less profitable opportunities and put more money into where we can make higher returns. We had called it Balance Sheet Optimization the last two years. I think it's now more business where we're gonna continue to exit customers that, through no fault of theirs or no fault of ours, we're not achieving the revenues that we'd like to achieve. But we're gonna redeploy that capital into areas where we think we could have much better growth based on our industry expertise now. And finally, as a bank, we're gonna continue to leverage our AI expertise.
We've been very public talking about reimagining the bank and how we think there's a lot of opportunity and a lot of cost saves by continuing to invest and leverage AI and also leverage all the processes that we've developed and simplify them. We're going to continue to use that and focus on that in the commercial bank.
So lots to unpack there. Perhaps let's start with the private markets, which has been a big theme in general and, you know, over the past day and a half at this conference. So sponsors are sitting on both levels of, elevated value and dry powder. So maybe question number one, where are we on the timing versus valuation sort of discussion with the sponsors?
I would say as last year kicked off.
Yeah.
We felt really good about 2025 being the year. And then we all had Liberation Day, which had although Liberation Day and that whole trauma around that was probably six-seven weeks, the impact of that went for far longer because companies, as they were getting ready to sell, there still wasn't clarity on tariffs. There wasn't.
Mm-hmm.
Clarity on what their projections were gonna be, which made companies more uncomfortable about putting their companies up to sale at this point. I think, as we entered 2026, we feel much better. We still, there's always a little volatility in our markets, but we feel much better that companies and buyers and sellers have more consistency around where they think their earnings are going. And, as such, we think that we will. I know our—I mean, our pipelines are showing in. I think all the banks' pipeline is showing a number of cap companies, private equity and middle-market companies who are ready to put their companies up to sale. The valuation for top companies, for A, A-minus companies, the valuations have been—we've been able to find buyers or sellers.
Where it got more difficult was on the second level down.
Yep.
Where there was a you know, the seller was like, "No, this company's worth so much more. Just wait." And the buyer was like, "Well, I'll wait and see." So we had trouble transacting. I feel like that bid-ask spread is narrowing relatively significantly, and we will start seeing those transactions occur in 2026. We have to keep in mind that these processes are kicking off now. So although I think this will be a very, very good year, I don't know that it'll be the best start-off point. But I think with the pipelines we're all seeing, we feel really good about what the year's gonna look like by the end of it.
So, Ted, you elegantly took us through the evolution of Citizens from financing LBOs to being a more complete partner. So maybe as we think about the potential monetization of these investments, you know, how will Citizens benefit, whether it's through a continuation vehicle, a merger like you mentioned, or an IPO?
So with private capital and with equity private equity, we look at these relationships as holistic relationships. We have moved from covering these customers on a product-by-product basis, and now we're trying to mirror what the private equity private capital firms do with us. They look at us as one bank servicing them.
Yep.
We're trying to look at them as one fund, and how do we best service that one fund? So we have from the simple part of financing and trying to do the sponsors' LBOs, we also layer that with doing subscription line business. We're providing that capital. We'll provide the ability for the sponsor to leverage their returns a little bit. If that's important to them, we'll provide private capital. We're fund lending to their direct lending funds. We'll provide that kind of business to them. We will continue to look at lending to BDCs if that capital's important. So we're looking at the overall relationship from a holistic perspective.
We think by doing that, we're having this dialogue, whereas if they do a continuation vehicle and they need an underwrite on a bank deal to move from one fund to the other, we'll be able to provide that for them. We'll be able to provide the expertise on that transition. We've done it several times now in the digital infrastructure space where we can provide the expertise to a customer on transitioning. But most importantly, continuing to give the company and the sponsor, the financial sponsor the right advice on what to do, when the right time to sell is.
And because we have all these different avenues into that financial sponsor, we can have a fair amount of seamless dialogue with them and make sure that they're getting to hear our advice, which definitely positions us to get the revenues when they do choose to transact.
Erica, let me just amplify something on that point. Is, you know, what one of the things we've tried to do is be completely agnostic about executions. So if you think about what we've tried to build, we can distribute an underwrite into private credit, into CLOs, into BDCs, into bank markets based on what market conditions look like and what the underlying transaction kinda dictates in terms of transaction structure. And then you broaden that out and say you can go, you know, senior debt, you can go, securities, you can go private equity, you can go family offices. And it's really as we as we engage with clients, particularly in highly transactional clients and if you think about our industry efforts, they're very transactional industries. So I think gaming and, and.
Yep.
Digital infrastructure, it's where the action is. And it's always changing in terms of where market appetite is. So we view our, you know, responsibility to our clients as kind of talk to them about the right execution as opposed to having a bond guy go in and a syndicated loan guy go in and an asset-based finance person go in, but really talk about given where market conditions are, what the calendar looks like away from us and on us, here's the best execution with for what you're trying to accomplish. And I think we're pretty unique in the regional space of having all of that and being able to move execution to execution.
So, just double-clicking on one way to execute, obviously through M&A, it's just been such a bullish morning on advisory revenues. So maybe remind us about how your capital markets revenues break down and how you expect to contribute to the 6%-8% total firm fee growth.
So building on what Don just said, we look at capital markets as an overall way if a company chooses to go to the bank market versus going to the bond market, if a company chooses to do an M&A transaction or hold off on an M&A transaction one year and take a dividend another year, we look at just being able to serve the customer in whatever they do. So we don't necessarily look at or I don't necessarily focus on each individual product as a whole. What we do focus on is are we providing the right advice? Are we in front of the customer when we need to be in front of them?
What I think we both feel very good about is that by the level of activity we're seeing and the discussions we're having and the mandates we're getting signed up for, we feel good about where we see capital markets revenue go in 2026. It just feels like a very different tone in the market. We were on a transaction last week for VSE, which was a great equity transaction for us, something that we would not have been able to do four years ago that we were able to be very much involved with this time.
So as companies are looking at different things to do, whether it's going to the equity markets, going to the bank market, whether it's just, "Hey, we need a bigger subscription line because, you know, we wanna move this from one vehicle to another," we feel like we can and we're there. And those conversations are definitely rising in 2026. They.
I think what we said on the earnings call was, you know, 6%-8% fee growth for the company with it over-indexing towards wealth and capital markets. So we would expect to do higher levels in the capital markets business.
So, Don, let's sort of switch to the private bank and how it's contributed. You know, obviously, you know, the folks that you hired have had previous experience in terms of subscription finance, you know, very niche-specific multifamily. And obviously, you know, banking and managing the wealth of the owners.
Yeah.
Of these businesses. How additive have they been? Do you expect that ramp to continue?
Yeah. You know, it's been actually incredible because, I mean, there was a little bit of consternation at the beginning because it's, "Oh, wow. We're gonna hire these fantastic, you know, bankers from the old First Republic. And they do what we do. They do subscription lines, and we do subscription lines." Once we got through about the first month, their client base is completely different than our client base. They tended to do venture and smaller funds. We tend to do larger funds.
Yeah.
In the big complexes. So I can't remember the number, but there's probably 10 crossover clients once you cut through it. And I would say from the digestion of these teams and it was several hundred people. So it was a big, big acquisition, you know, set of acquisition of talent by the company. But we digested it pretty quickly. And it was probably three-four months where we really began to work together. And as Ted said, the key on these things is you start to get some wins on the board, and you start to trust each other, and you start to actually, the private bankers begin to say, and remember, First Republic didn't have a capital markets business. They really didn't have a lending business. They didn't have, you know, M&A capabilities. They didn't have equity capabilities.
So they didn't have a lot of things that we can bring to bear for their clients. So it's a whole new opportunity for them to engage with their client base. And we, you know, we had Clarfeld and a little bit of a wealth business and a little bit of a private banking business, but we had nothing to speak of. So the complementarity of the two units and then you add Kristin. I can't remember, you know, five, six, 10 wealth acquisitions that we put on top of it buying, you know, wealth companies.
The ability to go to market with a full complement of capabilities is just extraordinary. We've had from a standing start two years ago. And as you know, we're generating good returns. We're growing faster than we thought we were gonna in the private bank and the wealth business. We've got decent LDRs.
All the metrics look as good or better than we thought they were going to. But I think the key is the way the teams are working together. You know, Ted and I just got off a call this morning with a private banking client who runs their—they're on their fifth fund. We've never banked them.
Mm-hmm.
They wanted to talk to us about how can we do more business with them. They've been a First Republic or we don't use that word anymore. They were banked by the First Republic bankers for, for years. It was just the bankers weren't even on the call. They trusted Ted and I to have that conversation. That's happening all over the place. So I think the growth trajectories across all of these businesses are gonna be quite significant. Then the question is, you know, how quickly do we let everything grow while making sure we maintain profitability? So I think.
Yep.
One of the things we have done well is calibrated investments with revenue generation. So we haven't gone out and gotten way ahead of us from an expense standpoint. And we've been able to bring the revenue and the returns in pretty quickly underneath. So we talk about it all the time around, you know, do we do another wealth acquisition? Do we hire 10 more capital markets bankers? But we're definitely investing across the overall platform. And I think we're just beginning to get going. I think it's gonna be quite exciting.
So you built something exciting. Now, is the macro exciting? So Don, you said in June that the trade war is behind us. So do you still feel that way? And, you know, specific to, you know, U.S. middle-market corporates, how are they feeling about where they are in the investment cycle?
Do you remember the football movie Any Given Sunday? I feel like it's.
Or.
Any given Monday now.
Any, any.
So.
You can tweet over the weekend.
Yeah. Exactly.
Yeah. Yeah.
So I think that, you know, if I go to the real macro.
Yeah.
You say we got a pretty good economy. We've got a pretty good regulatory environment. We've got a pretty good trajectory on interest rates. You know, the long end's gonna stay a little bit high, but the short end's gonna come down a little bit more, I think. You've got a client base which has confidence building within it. And so when we talked about the trade, the problem was early in a lot of these announcements, and you can extrapolate that into the government shutdown, the uncertainty Ted said this, the uncertainty that it presented to the client base was just it froze them for a while.
And they just and if you think about a year ago when this all began to start, it was like, "Oh, my God." But then now the pattern is very much there's a negotiation rhythm, I think, that's going on in the administration where things get announced, and then it's generally okay. So I think a lot of the client base has gotten relatively numb to some of the headlines. Whether that's right or not, we will see. But what has happened in the client base is, and remember, Erica, if you go back to 2025 and 2024, we had really robust capital markets activity.
Yep.
It was like 95% refinancing. So there was no new money content. And new money content is where the exciting things really happen. There's been a real pivot starting probably in December to new money transactions. And that's both in private equity and in the corporate side. So, you know, you had a lot of people and, and I think this goes all the way back to COVID who had pulled in their reins and said, "I'm gonna run my business very, conservatively.
I'm not gonna overhire. I'm not gonna leverage. I'm not gonna invest." That's definitely shifted. And people see an opportunity. And I don't know if it's because they wanna try to get in before the midterms, they wanna try to get in before the general elections, but they wanna they wanna move. And so I think there's quite a bit of stability in the markets.
Notwithstanding the software and AI rotation that's going on and a lot of that, but I think the macros feel really good to me right now in terms of the backdrop that we're sailing into. So if you combine what we think we've built from a client service and a product standpoint with a pretty good environment, and we look out into 2026 and 2027, I just think it's a phenomenal, you know, kind of opportunity for us. And then, you know, you're gonna get bumps in the road, and things are gonna get volatile, and things might slow down from peak to peak, quarter to quarter. But as Ted said, our pipelines look great across all products. And we just feel like there's a real opportunity to really get to where we think potential was.
I'm not gonna tell you what we think potential is, but it's higher than we are today.
I was about to get more excited for you.
Yeah.
To that end, you know, you have participated well in the, you know, indirect lending growth. You know, given your comment about, you know, net new money investments and the diversity of your pipeline, do you think direct lending is something that to the companies, right, to the middle-market companies, is something that could grow in 2026?
You know, it's interesting. I don't wanna say this firmly, but I can't think of many places where we've lost significant business in the middle market to a direct lender. Where we see them is in leveraged buyout land. And what they do, so go back to the real macro about how we think about leveraged finance. We are a diversification institution.
Yeah.
So I hold an average of $12 million in a leveraged buyout. So I'm not counting on leveraged lending to drive NII. That's an origination to distribution business. And so whether we're distributing to, as I said before, banks, CLOs, or private credit, we still make the same kind of distribution fees. And Ted's hired a couple people on our syndicate desk which do nothing but give syndicate services to private credit funds.
Yeah.
It's a specialty kind of acquisition. And for them, it jumps off of our industry expertise 'cause you've gotta know which private credit funds are like which industries and where they wanna play in size and what their metrics are. So building that distribution acronym. So if I kinda think about the math, and we've moved from lending to a leveraged buyout to lending to an underlying private credit fund and financing those portfolios, we make just about as much in terms of fees as doing a leveraged buyout as we do arranging a transaction for a private credit fund. And you're trading idiosyncratic credit risk for diversified borrowing-based credit risk at an entry point of 60 cents on the dollar or thereabouts where we have substitution rights.
So this is kind of an investment-grade quality where we're participating in leveraged finance through an intermediary vehicle as opposed to direct. So I'll do that trade all day long. And I think I think the one thing that I'm proud of is we stayed ahead of a lot of these trends, and we could see it coming. And part of that is and, and we've never really talked about this, the level of expertise that have been through multiple sets of market disruptions that are sitting on our platform right now is extraordinary. So they have you know, they've been doing this for 10, 20, 30 years. And you can kinda see the movie, as it as it unfolds. And I think we've positioned the company really well. So we haven't you know, we haven't lost a beat.
In fact, we probably have achieved slightly higher loan growth than we otherwise would have by participating in the private credit complex. I don't know if you wanna add anything.
Yeah. The thing I would add is the acquisition of JMP in 2021 where they had such expertise in providing equity research on these type of companies has positioned us as the direct lenders have grown to be able to find fee opportunities with these lenders that we never had the ability to do prior to JMP. So when they go to the equity markets, when they go to the bond markets, now when they wanna consolidate, we now have the expertise to do any of those type of transactions for them. So as this complex continues to grow, I think we feel really in a great position to take advantage of the growth with a whole series of different fee opportunities and balance sheet opportunities that we never had in the past.
So to Don's point, we've embraced this community. We've stayed ahead of where the rest of the market is. And I think we're gonna see the fruits of our labor really in the next couple of years.
Are we just at the beginning of the big, beautiful bill impact to the CapEx cycle?
Yes. We're at the beginning. We're seeing some minor impacts on that. We're seeing slightly elevated usage of our balance sheet and of our utilization on our revolver lines are slightly higher than they were. I don't know how deep it's gonna go, but we are definitely seeing some impact with that with companies who, for five years, you know, to Don's point earlier, the concern after COVID was, "Do I invest? Do I wanna take this risk?" We are starting to see some of that impact. Hard to say whether it's the big, beautiful bill. Hard to say whether it's just, you know, we've been five, six years, and we haven't made CapEx investments. It's time we start doing it.
But yes, we're starting to see some pickup there, which is part of our loan growth that we expect to see, in 2026.
So, Don, you know, Ted earlier talked about expansion markets, Florida and California, and, you know, New York City. If I missed something, please be additive. You know, and I think it's very clear what the answer is after talking to you guys for 20 minutes. But you see you're distinguishing yourself by being a complete solution, right? So maybe unpack that a little bit in terms of when you enter those in expansion markets, how you end up winning.
Yeah. So I think it's different by market.
Yeah.
So, one of the things that Ted didn't mention that is important about these expansions is we now have brand. It was very hard for Citizens to roll into Florida 'cause it was like, "Who's Citizens?" And there's, you know, 43 different citizens that we could be with. So it's very confusing to people. So the fact that we're in these markets with the private bank that we're in in California with, and New York with an investment bank in the form of the old JMP, which we rebranded as Citizens, you're starting to get that Citizens brand out there, which is it the conversation doesn't start with, "Who are you?" It starts with, "Oh, yeah. We, we, we've seen the kind of things that you're doing."
So I'd say we're playing the different markets, and we're seeing that dynamic slightly differently. So New York, we did Investors. We did HSBC, which gave us a big branch network, very big business banking growth, very big middle-market growth in New York. And, we were already in New York in size, not banking corporates per se, but banking the whole sponsor communities in New York. So we were all over New York, and we were in the capital markets. And so we were reasonably well known in New York. And I think the way we've done New York City on our side of the business, we've hired outstanding bankers from the money centers, both J.P. Morgan and Wells.
And I saw all my friends from J.P. Morgan and Wells. So, you know, it was just they were ready to move, and we're hiring teams in Long Island and New Jersey and New York City. And the transaction is quite, quite strong. So that's kind of a regular way middle market. And the way we play all of these markets is not only are we full service, but we pay attention to you. We really are all over these companies. And our service model and our service bundle, and that's been even more reinforced with the private bank. If you think about what First Republic was, it was all service, service, service, service, service, and one-stop shop. So that's the way we played New York.
Florida's been interesting. We have all of that. But what we're finding in Florida is there are a lot of middle-market companies which are with smaller banks who don't really wanna be with the gigantic mega banks. So a lot of our wins have been companies that are outgrowing their original relationships and need a fuller service platform, whether it be trade or.
Yeah.
Treasury services or, you know, capital markets access or whatever it might be. And then California, it's really a new economy play. And we're trying, you know, there's been a real void created in the California market, with Silicon Valley Bank and First Republic and a little bit of Union Bank, not, not as present as they once were. So there's really a dearth of provision. We're not going into the, you know, pre-IP pre-cash flow financing arena, but we do have some partners on the private credit side that we're working with that will provide some of those facilities.
So working back that's back to the private credit complex, working with those people that provide financing into some of these situations while we can come in and provide early-stage research versus J&P, provide good tech banking, provide biotech banking, provide fintech banking.
It just seems to that's the angle that we're playing in California. And I would say that the strength of our private banking capabilities in California are unbelievable, the reach they have into the Silicon Valley, San Francisco community, and the network effect that gives us in terms of just people that they know where doors open and we can have and I'll go back to one of the things that Ted threw out is this whole One Citizens thing. It sounds cliché, and a lot of banks talk about it. It's really powerful. And so, again, it comes back to, do you have excellence of client interaction and excellence of execution in every touch? So if we were coming in with a mediocre set of capital markets or advisory capabilities, the private bank wouldn't swing open the doors.
If they were coming in with a mediocre private banking opportunity, we wouldn't swing open the doors. But the quality of the capability set that we've put together, I think, is allowing us to leverage one another. And that's probably happening most powerfully in the private sponsor community and in the California market. So each one is a little different. And one of the things we are really careful about is, you know, one size does not fit all. One strategy does not fit all.
As Ted said, we're doing a much better job. I would say probably 95% of the clients that we've added in the expansion markets have been full-wallet Treasury services clients. So we're in there saying, you know, this is a quid pro quo that has to be part of the, you know, move of the relationship.
We want everything. We want the deposits. We want the Treasury services. And now that those businesses are really, you know, up to snuff against any of the competition, which they weren't 10 years ago, there's a much higher degree of likelihood that, that we'll win all that business is what is what we're seeing. So it's, it's exciting.
Such a wonderful.
Then I would just say one more thing, and Ted's driven this. We've taken everything that we're learning in the expansion markets and asking ourselves the questions, "Do we have an incremental opportunity in our core markets?" I mean, our talk track in our core markets has always been, "We have number two share or number three share. We're kinda saturated." But we actually don't think that's true anymore. So you should expect us to see some new growth in some of our core markets also.
So to wrap this in a bow, Ted, underneath the spotl oan growth guide of 3%-5% for the firm, what is the contribution from your business for this year?
We are seeing good opportunities. Again, I think I mentioned it earlier. We're starting to see the middle-market companies start utilizing their revolvers, which is a good sign for loan growth. On the mid-corporate side, we've been involved already with a couple of acquisitions that have required us to use our balance sheet, which we like to do to fund those acquisitions. That is going well. On the financial sponsor side of the business, we, with the pickup in acquisitions, see our subscription line business going up. We see our lending to the directs, that business starting to go up too. So we feel like the utilization in all of those businesses are doing well.
Overall, if we continue to see this M&A pickup, that will fuel a lot of our loan growth just by the natural ability to go off of our balance sheet. That combined with, as Don just talked about, the expansion markets, we think there's plenty of opportunities to see balance sheet growth in Florida, California, and New York, which we are small percentages to our overall loan growth. But incrementally, we can see some pretty decent-sized jumps in those areas. So we feel like the commercial bank is gonna be a healthy part to what's going on in our overall guide.
So, before I leave it to you for a key takeaway, you know, Don, since you mentioned it, you know, there was clearly some volatility last week surrounding software valuations. You know, I think we're way past the cockroach conversation. But generally speaking, I think that, you know, the investors are right. They're looking at sectors, right, rather than just, you know, credit overall. Are there any sectors where maybe it's flashing yellow and you're more mindful?
No. You know, we don't have much in the software arena. So we're watching that. And when we look through into our private credit exposures and again, we see what they have, and we see what's going on in the portfolios. We don't see anything in that that's particularly worrisome. I mean, it's low single-digit % of our portfolio. So it's just not a significant business for us. I'd say, you know, we're watching retail.
Mm-hmm.
And again, we don't have that much retail. But anything linked to the lower-end consumer with this K recovery that's going on, you gotta have a little bit of an eye on. You know, we've had some eyes on, you know, biotech, although that seems to be coming back again. Our exposure there is we have a reasonably modest, kind of biotech real estate portfolio, labs, and things like that. But those seem to be being fed and kept alive. We haven't had any losses or distress in there of any significance. Healthcare in general, again, it's a sector we'd like to be bigger in healthcare. We're not. And with all the changes going on in reimbursement and what's gonna go on with the restructuring of healthcare, you gotta be focused a little bit on, on, on that sector.
And then, of course, you know, the whole data center space where we do have exposures, but we think we've been really prudent with the way we've structured our activities there. And there's some structural degradation that's going on in certain parts of data center lending, which we haven't gone there yet. But, you know, there's gonna be a lot of volatility around, you know. I think the macro isn't intact. But I think there'll be a lot of questions there, whether it be across power, across water, across data center. But I think the way we've structured what we've done so far feels pretty good.
So if I look out, you know, at the CNI books and the like, you know, we've got an idiosyncratic thing here or there, but there's no major, major themes as it relates to the portfolios that we're running that worry so that worry us. And then, I think, you know, there's a little bit of a, you just have to always keep an eye on regulatory shifts and changes.
Mm-hmm.
And that are coming out of Washington. And what does it mean from a—it's really not necessarily an industry thing per se, but it's a company-by-company kind of event. And then, you know, the leverage portfolios are holding up pretty well. So we don't see a lot that really worries us right now. So I think that just feeds that whole narrative that we think it's gonna be a good backdrop to be. You know, you're not gonna have and I think that's true of the industry. So you're not gonna have a lot of banks kind of inwardly focused on problems. They're gonna be focused on, "How do we actually get business done?
Growth has been a big theme this morning.
Yes.
Yeah.
This is good.
So, you know, Ted, before we sign off, what is the key takeaway you'd like to leave with the investor community about your business and how you could really help the firm accelerate towards that 16%-18% ROTCE target?
Well, it's exciting. I mean, I couldn't be happier about where we are right now. I think as we started this conversation, we've positioned this bank to be—we positioned our commercial bank to be in great position to take advantage of the market we are in today, which is, I think, will be dominated by larger, more M&A, more transactional business versus the market we've been in the last three or four years, which has basically been a refinancing market. So we've been investing, and we've been spending our time so that when this market comes, we will be in a great position to win our fair share of transactions.
Based on our pipelines right now, I feel like we're in a great, great spot to and I think our strategy has gotten us to where our pipelines are. Now, the most important thing we have to do this year and next year is execute as well as, I think we can, to prove that we belong to and we deserve to get the businesses we're getting, whether that be the best price for a company on a bond deal, the best valuation for a company on an M&A deal, the best execution for implementing our Treasury Solutions to a company. We have to, one, first and foremost, execute.
I think with that, we'll have the ability to continue to invest in more and more industry verticals that we can distinguish ourselves into, put more resources into our expansion markets on the middle market, continue to build out our mid-corporate industry coverage, which has, again, we've just changed that, and hopefully continue to invest in the private capital community as we continue to still see that as a growth vehicle going forward. So if we can execute, if we can make the revenues that I think we're well-positioned to make, I think we're taking and putting our foot on the accelerator and staying ahead of where our competitors are is what our real goals are going forward.
Great. Ted and Don, thank you so much for joining us here in one of your expansion markets, Florida.
Thank you.
Thank you.
Thank you, Erica.
Thanks, Erica.
Thank you.