Citizens Financial Group, Inc. (CFG) Q4 2018 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the Citizens Financial Group Fourth Quarter and Full Year 2018 Earnings Conference Call. My name is Brad, and I'll be your operator on the call today. [Operator Instructions]. As a reminder, this event is being recorded. Now I'll turn the call over to Ellen Taylor, Head of Investor Relations. Ellen, you may begin.

Thanks so much, Brad. Happy 2019 everybody. Thanks so much for joining us this morning. Our earnings release, presentation and financial supplement are available at investor.citizensbank.com. Chairman and CEO, Bruce Van Saun; and CFO, John Woods, will provide an overview of our fourth quarter and full year results along with our outlook for the year and then we will open the call for questions. Once again, we're pleased to have Brad Conner, Head of Consumer Banking and Don McCree, Head of Commercial Banking with us today. And of course, I'm required to remind you that our comments will include forward-looking statements, that are subject to risks and uncertainties, and information about the factors that may cause our results to differ materially from expectations, and can be found in our SEC filings, including the Form 8-K filed today. We'd also utilize non-GAAP financial measures and provide information and a reconciliation of those measures to GAAP in our filings. And with that, it's all yours, Bruce.

Thanks, Ellen. Good morning, everyone, and thanks for joining our call. We're pleased to report another strong quarter today, with underlying net income up 36% and diluted EPS up 38% year-over-year. These results were paced by solid loan growth of 5% year-on-year, continued NIM expansion, which combined with good expense discipline drove 5% underlying positive operating leverage, excluding Franklin American Mortgage acquisition. Our underlying ROTCE improved to 14.1%. The underlying efficiency ratio dropped to 56.7%. Our success in hitting our new medium-term financial targets has led us to raise them again, which we will cover later in the call. For the full year, our results were also strong. Underlying net income was up 32%, and diluted earnings per share was up 38%. Our PPNR growth was 13%. We consistently exceeded expectations each quarter during the year given our disciplined execution along with favorability on credit. We feel very positive about the accomplishments in progress that we made in 2018. Some of the highlights from my perspective include: first, strong execution of our TOP and our BSO programs; we had excellent progress on our customer, colleague and community agendas; we had some really strong technology innovation, including the launch of Citizens Access, reaching 10 fintech partnerships and great momentum on our digital and data agenda; acceleration of our branch transformation effort with 109 branch actions delivered; and also the smooth opening of our new campus in Johnston, Rhode Island. We made 2 smart fee-based acquisitions, Franklin American Mortgage and Clarfeld Financial Advisors, and we delivered strong returns of capital to shareholders including 2 dividend increases with a dividend now up 45% year-on-year. We also added some great talent to the company including Ned Kelly and Terry Lillis to the board, and Michael Ruttledge, recently, as our new Head of Technology. Now as we've many peer banks, there is a disconnect between our progress on the field and our stock price in 2018, but that said, we are focused on what we can control and our expectation is that if we continue to execute well, run the bank better and better and make the right investments to grow our franchise value, then the stock will recover and better reflect our true value. The market's been concerned with the possibility of recession and rising credit costs. Our view is that a recession is unlikely in '19 or '20, and the economy is on a sound footing. We have been highly disciplined in the process of growing our balance sheet and our expectation is that we will perform better than the median super regional in the next downturn. We did moderate our loan growth somewhat in 2018 relative to our beginning of the year outlook, and we've steered away from riskier lending on both the commercial and consumer sides. During the choppy Q4 loan markets, we did not take any underwriting losses or have any hung deals. We've provided our usual detailed guidance for 2019 in our slide deck, which John will cover in a few minutes. The blueprint will seem very familiar, reasonable loan growth, some NIM expansion, better growth on fees, good expense discipline and positive operating leverage. Credit provision, while normalizing somewhat, should remain well behaved. And we will continue to prudently manage our capital base. So in summary, our expectation is for another year of good execution and further progress across the board. With that, let me turn it over to John.

Thanks, Bruce. And good morning, everyone. We're pleased to report another strong quarter with improving results and a great finish to a year marked by steady execution and significant progress against our targets. We continue to run the bank better, and we are entering 2019 with nice momentum. I'll touch on some of the slides in our earnings presentation. So if you pull those up, it may assist in following along. Some highlights for the quarter are shown on Page 4. We grew our underlying EPS 38% year-on-year. We continued delivering robust positive operating leverage 5% year-on-year, excluding the impact of the Franklin American Mortgage acquisition. And we did this while making the long-term investments required for sustainable success. We continued to make progress on improving returns with underlying ROTCE for the quarter of 14.1%, up 61 basis point linked quarter and 3.7% year-over-year. We continue to focus on growing our customer base and loan portfolios across our Consumer and Commercial businesses, while also expanding and investing in our fee-based capabilities. This has led to consistently strong revenue growth. We have been disciplined on expenses giving our TOP programs and mindset of continuous improvement. This has created the capacity to make significant investments in technology, digital, data and customer experience, which positions us well for the future. This plan and our ability to execute provide a strong foundation and outlook for 2019. On Page 5, we provide information on some notable items this quarter, including the impact of an additional $29 million benefit tied to 2017 tax legislation. This was partially offset by other notable items totaling $26 million aftertax, largely associated with TOP V, including several real estate initiatives such as accelerated branch closures. We also recorded $12 million of aftertax integration costs related to the Franklin American acquisition. In order to make it easier to see our core trends, we will largely focus on our results without these notable items. On Page 7, you can see that we delivered underlying positive operating leverage of 5% excluding the impact of Franklin. We also delivered an underlying efficiency ratio just under 57%. And our underlying PPNR growth year-over-year was 13% excluding Franklin. Moving to Page 10. We are pleased that despite a fairly competitive landscape, we continued to drive disciplined balance sheet growth and delivered a 2% sequential quarter increase in net interest income. And our net interest margin increased 3 basis points in the quarter, reflecting continued expansion in earning asset yields, with deposit costs in line with our expectations. Turning to fees on Page 11. Underlying fees increased $10 million despite a challenging market environment in the fourth quarter. This was driven by strength in global markets and the full quarter effect of Franklin. In global markets, FX generated excellent results up 16% quarter-over-quarter, due to elevated customer activity against a volatile but mostly range-bound U.S. dollar index. Our capital market fees were relatively flat linked quarter despite some major volatility and disruption in the loan and debt markets. Our loan syndications fees were up 20% linked quarter with very strong volumes leading to a record number of lead and joint lead transactions for the fourth quarter and the year. This was offset by lower bond underwriting fees given limited issuance in November and December. Additionally, we had a strong quarter and M&A revenue as we gained leverage from our Western Reserve Partners acquisition. On the Consumer side of the house, we now have a full quarter of fees from Franklin and the integration is on track. We also saw continued traction in our Wealth business with a 4% linked-quarter increase in managed money revenues and 19% growth year-over-year. On Page 12, we continue to focus on balancing expense discipline with the need to fund investments to drive future revenue growth. As a result, excluding the impact of Franklin, linked quarter expenses were down $5 million, reflecting the benefit of a decrease in FDIC insurance expense. We utilized some of this benefit to fund strategic growth initiatives while maintaining strong expense discipline overall. Let's move on to Page 13 and discuss the balance sheet. We continue to focus on prudently growing our balance sheet in a fairly competitive environment. We saw some nice growth in commercial loans in our industry verticals and in our geographic expansion areas. We remain very selective about CRE but are still finding some attractive opportunities for growth in areas like tenant-secured office and industrial distribution facilities. On the retail side, we continue to see good traction in some of our attractive risk-adjusted return categories like education and unsecured as well as important categories like mortgage. Overall, we grew core loans by 2% linked quarter and 5% year-over-year, notwithstanding the impact from the planned runoff in auto, noncore and leasing, which was around $1.7 billion or 1.5% year-over-year. Core loan yields improved by 14 basis points in the quarter, which was ahead of the 11 basis point improvement we saw in the third quarter. We continue to see good results from our balance sheet optimization efforts, which in the quarter delivered about 4 basis points of 14 basis points of margin improvement year-over-year before the impact of Franklin. Turning to Page 14. I am pleased with what we were able to accomplish in deposits this quarter. We continue to do a nice job of growing deposits, which were up 1% linked quarter and 4% year-over-year. In particular, we continue to see gains in DDA balances, which were up about 3% year-on-year and approximately 1% before the impact of Franklin. This is the sixth consecutive quarter we have grown DDA on a year-over-year basis. This growth is led by strength on the consumer side where our deposit initiatives are really paying off and DDA balances are up 4.5% year-on-year, ex Franklin. Our total deposit costs were well controlled, up 9 basis points, which was better than the 10 basis points we saw last quarter. Interest-bearing deposit costs rose at a slower pace again this quarter, increasing 12 basis points compared with a 14 basis point increase in the third quarter and 15 basis point increase in the second quarter. Our cumulative beta on interest-bearing deposits is in the mid-30s, as expected, and remains in line with our overall expectations given where we are in the rate cycle. We are benefiting from investments we've been making in Consumer that began back in 2016 in areas like enhancing our product suite, improving the customer experience through our customer journeys work and in analytics to improve our customer targeting. In Commercial, we are making investments to build out additional product capabilities like escrow services, and are rolling out our new cash management platform in 2019. Also, Citizens Access has contributed nicely to our funding diversification and optimization of deposit levels and costs. By year-end, we reached about $3 billion in deposits, having launched in mid-July. While this remains a relatively modest part of our overall deposit strategy, we continue to be very pleased with the progress so far. We now have over 30,000 customers through Citizens Access, with 96% of these deposits from new deposit customers and the average account size is about $72,000. Year-over-year, our asset yields expanded 55 basis points, reflecting the benefit of higher rates and the impact of our BSO initiatives. Our total cost of funds was up 44 basis points, reflecting the impact of higher rates and a continued shift to greater long-term funding. This included the impact of the $750 million senior debt issuance late in the first quarter of 2018. Next, let's move to Page 15 and cover credit. Overall, credit quality continues to be excellent, reflecting the continued mix shift towards higher-quality, lower-risk retail loans and an improving risk profile in our commercial book. The nonperforming loan ratio improved to 68 basis points of loans this quarter, down from 79 basis points a year ago. The net charge-off rate of 29 basis points for the fourth quarter was relatively stable linked quarter and year-over-year. Retail net charge-offs reflect improvement in auto, which helped offset expected seasoning in the unsecured portfolio. Commercial net charge-offs for the fourth quarter were up modestly compared with the prior year, which benefited from higher recoveries. Overall, we feel good about credit metrics and trends in the book including a continued decline in criticized asset levels. Our allowance to loans coverage ratio ended the quarter at 1.06%, reflecting continued improvement in the loan mix towards higher-quality retail portfolios and improved rating agency-equivalent risk ratings in Commercial. The NPL coverage ratio improved to 156% as we saw 4% reduction in NPLs linked quarter with continued runoff in the noncore portfolio. Investors continued to be worried about a challenging macroeconomic environment and the potential for increased credit costs, but we continue to feel good about our risk management talent and profile, and our overall credit quality trends continue to be variable. We've included some good slides on Page 27 through 31 from a recent conference presentation on this topic, in case you missed them. On Page 16, we continue to maintain strong capital and liquidity positions, ending the quarter with a CET1 ratio of 10.6% compared to 10.8% in the third quarter. This quarter, we repurchased $300 million of common stock and returned a total of $427 million to shareholders including dividends. Our Board of Directors has declared a dividend of $0.32 a share, which is a 19% increase over the prior quarter. With this increase, the dividend is now 45% higher than it was a year ago. Our achievements against our enterprise-wide initiatives are highlighted on Page 17. We continue to make traction on our balance sheet optimization efforts as we recycle capital out of lower-return categories like auto and leasing, where the core yields have improved and the portfolios have increased significantly, and we redeployed that capital against higher-return categories like our education refi and Merchant Finance portfolios as well as in higher-return relationships in Commercial. Balance sheet optimization contributed 5 basis points of our 17 basis points full year 2018 versus 2017 margin improvement. Additionally, we continue to deliver beyond expectations in our TOP programs, where we now expect TOP IV to deliver about $115 million in pretax run rate benefits. As we work on expanding our capabilities, in Consumer we completed the acquisition of Clarfeld Financial Advisors. Clarfeld provides a unique opportunity to accelerate our strategy of building a highly competitive wealth management business to serve some of the most affluent markets in the country where we operate. They have sophisticated high net worth and ultrahigh net worth offerings that will really complement our wealth platform. Most noteworthy in the quarter on the commercial side is the launch of commodities hedging services as well as a modest high-yield sales and trading operation. Given a further tax benefit from the 2017 tax legislation, we were able to accelerate a number of our efficiency initiatives including a significant acceleration of our branch modernization efforts. And as we bring TOP IV to a successful close, our TOP V initiatives are well underway. Bottom line, we've been able to successfully lean forward with our longer-term strategy, while also executing well and delivering strong results in the near term. On Page 18, you can see the steady and impressive progress we are making against our financial targets. This quarter, we hit the middle of the range of our 13% to 15% medium-term ROTCE target set in January 2018. Since third quarter of '13, our ROTCE has improved from 4.3% to 14.1% underlying and our efficiency ratio has improved by 11 percentage points from 68% to 57% and EPS continues on a very strong trajectory as well up to $0.98 on an underlying basis from $0.26. On Page 19, we review our full year performance against the guidance we provided at the start of 2018 as it's always good to hold ourselves accountable. You can see mostly green ticks on the right column demonstrating another year of strong execution against the backdrop of slower loan growth across the industry. We remain focused on improving the fee income line through both organic initiatives to expand capabilities as well as through smart targeted acquisitions. On Page 20, we detail our guidance for 2019. Quite similar to 2018, with good top line growth, a 3% underlying positive operating leverage target excluding Franklin and Clarfeld, further efficiency ratio improvement and capital normalization. A few points of color. We expect reasonably strong loan growth similar to 2018 in the range of 3.5% given the unique opportunities to capitalize investments in people and products. Growth will continue to be focused in the areas we believe offer attractive risk-adjusted returns. We project NIM to be of low to mid-single digits despite no short rate increases on the forecast and a flattish curve. This reflects continued execution of our balance sheet optimization efforts. We expect continued growth in noninterest income in the 11% to 13% range as we leverage our investments and expand the capabilities and continue to invest for the future. This is 4% to 6%, excluding the impact of Franklin and Clarfeld. We expect credit quality to remain well controlled with provision normalizing towards the range of $400 million to $450 million. We expect our CET1 at the end of the year to be around 10.2% with a dividend payout ratio in the range of 30% to 35%. Our outlook for the first quarter is on page 21 and it reflects continued momentum in both our top and bottom line results. The first quarter is typically a seasonally softer quarter for us given several factors, including day count, seasonal activity levels and FICA taxes associated with incentive compensation. We expect linked quarter average loan growth to be around 1% given strong commercial lending pipelines and solid growth in education and retail unsecured. We expect NIM and NII to be broadly stable reflecting no rate hike and no impact on NII. Noninterest income should be broadly stable as a rebound in capital market fees is expected to offset seasonal impacts. We expect noninterest expense to be up in the low to mid-single digits given seasonal factors like FICA taxes on incentives. In addition, we expect provision expense to remain relatively stable. And finally, we expect to manage our CET1 ratio to end the first quarter around 10.5%. Overall, our view for the quarter reflects continued strong execution against our plan. So now, let me turn it back to Bruce.

Thanks, John. Turning to Page 22. Let's shift gears and focus on where we're taking Citizens over the medium term. We have a mission to really make a difference for our customers, colleagues and communities so that they can reach their potential. Banks that can deliver this will build long-term franchise value and stand out in a crowded banking landscape. And we are committed to getting the balance right between building long-term franchise value while also delivering consistent earnings growth and attractive returns. The bottom of the page shows where we will differentiate to be successful. First off is our culture. We have a very powerful customer-centric culture. Next is our discipline around how we're trying to run the bank better each and everyday. I think our financial and operating discipline is fairly unique amongst the regional banks. And lastly, we are committed to excellence being a trusted advisor, having great leaders, having great digital capabilities, a great ability to use data, those things that will really distinguish us. On Page 23, let me identify some of the keys to taking our financial performance to the next level. There's 3 things that I would point to that are listed here on this page. First, what's gotten us this far are the same things that should propel us further. So having a top leadership team, having a good game plan, a good ability to execute and make the investments that position us for long-term growth, those things will continue to propel us forward. I look at what we've accomplished over the past 5 years as a great foundation for an even better next 5 years. Next, the enterprise-wide initiatives like our TOP program and our balance sheet optimization program still have a good amount of running room, and they are fairly differentiating for us relative to our peers. And then lastly, we're doing a very good job of not only delivering and putting points on the board with our short-term execution, but we're spending a lot of time thinking about our long-term strategy, thinking about what's changing in the banking environment, what's changing in technology, what are the investments we need to make to continue to be successful and position us to drive strong franchise value. And it boils down to some extent to a growth mindset, to look for those opportunities where we can find new revenue pools, new ways of doing business, new ways of serving customers, and we feel good about our ability to do just that. On Page 24, we present our new medium-term financial targets. You can see that we've outlined our expectations for the overall economic environment, which is relatively constructive. Our the medium term, we expect to deliver continued improvement in ROTCE, moving our target range up by 1% to 14% to 16%. We are not expecting much in the way of further rate increases and while GDP growth will slow relative to 2018, we do not expect a recession anytime soon. The key to the continued ROTCE improvement is continuing to deliver positive operating leverage, and there TOP and BSO will be appointed to this given the potential for fewer tailwinds from the environment. We expect to see continued efficiency ratio improvement down towards 54%, we also expect to see some normalization in credit from the excellent performance that we're seeing today. And we continue to be focused on returning capital to our shareholders through our repurchase program and targeting a dividend payout of 35% to 40%. Over this time frame, we would expect to reduce our CET1 ratio towards our target of around 10%. So to sum up, on Page 25, we feel that we've delivered strong results in Q4 and for the full year 2018. We are focused on growing the bank in profitable and sustainable ways and we will continue to deliver improved efficiency and effectiveness. We feel our balance sheet remains robust and our credit position is in great shape. And as we head into 2019, we feel very good about our ability to grow the business and drive towards our new targets. As you know, we've been a public company now for about 4 years. At the outset, we had a lot of work to do to, to address the issues that arose from the challenges faced by RBS. Today, the feeling inside Citizens is that we've turned the corner. We've addressed many of the challenges we faced at our IPO. We have demonstrated our ability to set a course, develop a plan and execute that plan. We have a long-standing effort to drive ROTCE higher, drive our efficiency ratio down, normalize the capital ratio and grow EPS. And we have made good steady progress on that path, quarter in and quarter out. We are now in a new phase that we're calling Aiming For Excellence, on our way towards becoming a top-performing regional bank. So with that, Operator, let's open it up for some questions.

[Operator Instructions]. And we will go to line of Scott Siefers of Sandler O'Neill.

Let's see. First question, so fees had little bit of noise in the fourth quarter just given the seizure in the capital markets, but it looks like you got traction in most of the other major line items. I guess just as you look out at -- into 2019, within your guidance, can you maybe, either John or Bruce, talk a little about sort of the complexion and the main drivers that you see to get to you -- to your guide for the full year?

Yes. I'll start, John, you can offer additional color. But I think the first area that will really power the kind of underlying 4% to 6% fee growth that we have excluding Franklin and Clarfeld is a bounce-back year in Capital Markets. So we see good pipelines going into the first quarter. The bond markets are starting to loosen and so I think we'll see some good revenues coming out of loan syndications. I think we've got really good traction now in our M&A business. We're going a good job of cross-selling that, the Western Reserve capabilities into our customer base, so we feel good about that. Our Global Markets FX and IRP capability continues to grow. We're doing more than we did under RBS. We're doing a good job of penetrating the customer base. So those would be, I think, the key drivers on the commercial side. We are rolling out a new cash management platform so we have ambition to also pick up the growth a bit in Treasury Solutions. On the Consumer side, I think Wealth is well positioned for success this year. We've made, I think, the right investments to get the right size of sales force in place, the right approach to selling, the right product capability. We're doing more managed money sales. So I think we have a very good outlook for underlying wealth even excluding what we're doing with Clarfeld. And then our card business also, I think, we're going to make some progress. We have reinvigorated that a little bit and we're starting to see some signs of growth there. Anything you'd like to add, John?

Yes, no, I think you pretty much covered the highlights. I think the key message being that even without the deals, Clarfeld and Franklin, we're seeing nice growth and then you will see the full year effects of both Franklin and Clarfeld that you'll see that's also built into our guidance. But I think you hit the important points without Franklin and Clarfeld on both Commercial and Consumer.

Perfect. And then separately appreciate the new medium-term targets. I had one quick question on the updated capital ratios. So just if I look at things, you guys, obviously, have a very robust starting point. Just curious as you're looking at refreshing the targets if there's any thought to becoming, perhaps, even a bit more aggressive than the 10% CET1 target? And just overall what the thinking was in how you arrived at 10% as the appropriate number?

Yes. So if you recall, last January, we had a 10% to 10.25% as our target range. We've taken the 10.25% range out and so we just moved the target to 10%. I do think we're going through a transition where the regional banks may look to push the capital ratios down a bit. There is -- the Fed proposal's out. And as we've said in the past, we don't see any reason why we can't operate at the median of our peers. So if that moves down to 9.5%, say, then I think you could see us, in the future, making adjustment and over time bring that back to where the peers are. So we are -- that may be a tad conservative to leave it at 10%. That's where we're leaving it for now. Obviously, it would drive up and have positive implications on our ROTCE if we ran it at a little more levered.

Yes, it's okay. Maybe just add that I think it served us well to have this gradual glide path that we've been on. Given that, as Bruce mentioned earlier, we just went IPO 4 years ago, and we continue to find new opportunities to deploy capital, which is clearly our primary goal to deploy capital in excess of cost of capital and so whether that's through loan growth or targeted fee-based acquisitions, we've been pleased with the flexibility that this glide path has created for us. So we'll continue to balance that as we look towards that target.

Next question will come from the line of Erika Najarian with Bank of America.

So, Bruce, we heard you loud and clear that you noted -- somehow your stock gets more of a discount when the market is worried about a recession, and we appreciate all the back data that you've given us. Given that everybody's credit quality looks great right now, and the underlying FICO looks similar across your peers, maybe give us a little more perspective? I think you brought up a good point that you were only a public company 4 years ago and so perhaps give us perspective on the catch up that you had to do since you emerged out of RBS and how that has contributed to above peer growth rates?

Yes, sure, Erika. I'll start with that point first and there's a good slide in the appendix that shows that as RBS ran into its challenges and needed to raise capital levels, Citizens being owned by RBS had to rundown its assets, did not receive TARP funding. And so when you ultimately delever and you're in a high fixed-cost business, it really hurts your profitability. So part of our strategy here in recovering the bank's profitability was we needed to grow assets and gain that leverage back. And I think we've done that in a very, very disciplined way. On the Consumer side, we've decided to grow our mortgage business, which brings two things. It brings fees but it also brings high-quality assets. But then we also look for some niches like education refinance loans, where we're one of the leaders, if not the leader, in the market, which is I think a very great product, a, for the borrower and for society but also good for us in terms of risk-adjusted returns. And then our merchant financing partnerships with Apple and others and stay tuned, more to come, those also I think offer very good risk-adjusted returns and we have typically a loss-sharing arrangement with our partner. So I feel really good on the Consumer side that we've been disciplined and we've had a desire to grow but we've been very careful in where we're growing. And then on the Commercial side, similarly, we've scaled up the business by hiring some great bankers. We've got really good credit people, starting with Don, who is here with me in the room but also on our credit team. And so I think we've brought over some new relationships to the bank that come with the bankers that we hire, the seasoned banker that we hired. So we've grown in our industry verticals, which tend to be bigger companies, which tend to be better credits and when we've gone into new regions, we tend to focus on the bigger companies there as well, which tend to be higher-quality credit. So another slide in the appendix shows that even just over the past year, the quality of the credit book in Commercial and in Consumer has improved. So we are not growing for growth sake. We're growing in very disciplined fashion, both on the Commercial side and the Consumer side.

And my follow-up question is as we think about net interest margin dynamics, looking forward, if the Fed is on a prolonged pause, how should we think about the dynamics beyond 1Q '19? And typically in your previous observations, how many quarters after the last rate hike does deposit repricing start really tapering off?

Yes, I'll go ahead and take that one. So we -- it's hard to know exactly but I think we model out something in the neighborhood of 6 to 12 months post the final Fed hike where deposit costs lag starts to continue to burn in, a little bit higher earlier in that period and just kind of tapers off over that first year is how we model it out. I think the dynamics you should think about is, remember, our portfolio is about 50% floating, about 50% fixed and even if the Fed doesn't hike, we still have this momentum of that front book on the 50% that's fixed that continues to reprice over the remaining lives of those assets as long as loan rates don't fall. And so that's why you're seeing the fact that we're still confident that we can continue to drive NIM growth because of that dynamic in terms of how we're organized, and that will be net positive. In addition to that, we have our management's actions and BSO that we will add to that, that will help solidify our confidence that we can continue to drive NIM going forward.

And our next question comes from line of Matt O'Connor with Deutsche Bank.

I just want to follow up on the asset quality question because -- I agree with Erica, the bottom line is you've been delivering very strong results and I do think in a selloff, people worry about your credit quality, even though all the metrics have been very strong. And I think the slide you have on Page 28 that shows the commercial book and how the quality has been improving, it's helpful. But there isn't a lot of focus on things like leveraged lending, which I'm not really sure people fully understand if that really is where the risk is and what it is, but maybe just talk a little more detail about the process of how you think about managing risk in the commercial book, what the -- how involved you are, Bruce, which I would guess is very involved, as you think about some of the big credits? And just how you can change this perception that's out there, which seems to be blown out of proportion in my opinion.

Yes, I agree with that, Matt, and let me start, and then Don certainly is well positioned to offer the color on this. At the top of the house, we want to have diversity and granularity in terms of our credit exposures and so we do run a leveraged lending limit and we kind of run it very tightly and try to get a lot of throughput against that limit. So the goal, ultimately, when we are doing sponsored leveraged loans, for example, is to serve customers that we've known for a long time, that we have confidence that they're good operators, help them finance the deals that they want to do and then limit our hold position and view that as really originate-to-distribute kind of business and I think we've been quite successful at that. And I think you can just see in the fourth quarter when the markets were seizing up that we didn't take underwriting losses, we didn't have hung deals. I think we have a good sense for where the markets are. So and then the other aspect is if you look at Commercial Real Estate, that's another kind of typical worry bead that you have to stay very focused on, what's your limit overall? How much exposure do you want to take? I would say there that there we're -- our limit is quite a bit under our peer level of exposure still today, and so there is a slide in the appendix that shows that. And I think again, the question you need to focus on granularity, making sure that you are not overweighted in any particular class like office or multifamily, making sure that you have geographic diversity, making sure you're banking really good operators that you've known for a long time. And I think we apply those same disciplines on the CRE side as well on leveraged loan. So a lot of this gets to people and leadership. Feel really good about Don, feel good about the whole credit team, Rob Allen runs commercial credit. Very experienced people. And I guess you almost have to go through a cycle to prove it, but when you run the CCAR results, we're kind of in the pack. We are kind of median. So for people to be disproportionately worrying about our credit because we're relatively new company doesn't seem to be sensible. Anyway, with that, I'll turn it over to Don.

Yes. I think you hit most of the high points, Bruce. So I think it starts to decline selection first and foremost, so where we've long-standing relationships with the vast majority whether it be sponsors or corporate clients we're doing business with. Our growth of the margin as Bruce said, in the growth regions tends to be larger companies, and we've -- we purposely have stayed away from the middle market in those areas because I do worry about adverse selection as if we do get wobbly. So we're dealing with better more nimble, larger companies. The second thing that you've mentioned, Bruce, is origination for distribution. Virtually, everything we do in the risk side of thing, we distribute the vast majority. You heard there's a lot of commentary out in the system about the nonbanks and the nonbanks taking share from the banks, but that's where most of the residual risk is going on the leverage -- lending portfolios. We have very granular holds, I'd say, in our leverage lending books. Our holds are in the $10 million range. And I think the service we -- that we're are providing our clients is really diversifying and what you're seeing is try to do more multiproduct business with every client that we're banking. So the addition of Western Reserve, the addition of securities capabilities to distribute not only in loan markets but the bond markets. The ability to deliver risk management to our clients in our hedging business, foreign exchange and interest rates just makes us more relevant with the client and lets us know them better also. We're also doing -- we're doing some interesting things in our payments business where we're getting to explore patterns in our payments business, which could become early-warning indicators of companies having problems. And we've also built a restructuring business, which is a remediation business that helps clients change their balance sheets if they begin to get hiccups in their operating models. So -- and I think the last point that Bruce made is really important. That the people that we have engaging with our clients, approving our credits. Remember in Commercial, every single credit extension is approved on an idiosyncratic basis so credit quality, structure, collateral, everything, we have 30-year professionals, not only in are underwriting syndicated lending businesses but also in our credit teams, most of which have come from large money-center banks. So everyone -- notwithstanding the fact that we're relatively a new company has been around the block numerous times. And we also -- we're all acutely aware of the downside of spiking credit costs and what that can do to an operating performance.

That's very helpful. And then just a follow-up, Bruce, on the stock itself, I think you're very extensive to where the multiple is here. As we think about the CCAR process getting a little bit easier for regional banks to navigate, you could be one of the biggest beneficiaries there both can give a lot of capital, and I think you've been dinged because some of the legacy stuff that will change over time. But if your stock price does continue to sit at the bottom of the pack on a multiple lease, could you give a look for ways to get more aggressive on buybacks? It might not be necessarily the CCAR cycle, but are you mindful that you will have more flexibility and maybe put more toward buybacks versus bolt-on deals or balance sheet growth as we think about 2020, 2021, as kind of a backup plan if needed?

Well, look, obviously, we pay attention to the stock price but really the big focus is just keep running the company better than we think the stock will take care of itself. We have to be careful not to be market-timers here in terms of these programs. And you get your CCAR approval in quarterly windows and you can try to change that but it's a little cumbersome. So yes, I think when we go in and think about next year and the CCAR ask will take the stock price into account to some extent. But our view is that the flexibility that we've had, the ability to deploy it in some of these fee deals, it's a complex problem we're trying to solve. We're trying to get our returns up, but we're also trying to expand our capabilities and cement our relationships with our customers and address the kind of fee gap that we have. And so we'll continue, I think, to use good judgment on that like we have, like you've seen us in the past.

And our next question will come from the line of Geoffrey Elliott with Autonomous Research.

Maybe coming back to the net interest margin. Could you help us understand why you've got a stable outlook rather than some upside in 1Q? Given that we normally expect the benefit from the December rate rise to foremostly in the first quarter? And then looking ahead to 2019, the full year, I think the outlook kind of points to low to mid-single digits up from 2018. So similar to that 4Q '18 level, can you just confirm that?

Yes, I'll go ahead and take that. So a couple of items to think about the first quarter. First and foremost is, yes, we have the December hike but when you look at the outlook for 1Q, we've got a 17 basis point rise in LIBOR expected versus what you saw in the fourth quarter, which would have been around 24 basis points. So I think you've got to take that into consideration in terms of how that drives the -- our C&I loans and our loan yields. But the other item as I mentioned, earlier, the deposit cost lag is post-December, tends to be strongest in the earlier part of the year and tapers off towards the later part of the year as we look at it. So you'll see the dynamic of the deposit cost increase continuing to the first quarter and across the industry. And then that will taper and what will happen is the strength of the front book in the fixed part of the portfolio that I talked about before will just continue to provide benefits quarter-after-quarter. So in the earlier part of 2019, maybe as we say more stable but then as you get towards the later part of 2019, you get deposit costs dissipating and you have the continued burn-in of front book, back book, anywhere from 50 basis points in some of our fixed portfolios up to as much as 150 basis points of front-book yields that exceed back-book yields. So that's the main dynamic without management's action as I talked about before, that plays out, which we say is, I think, over the year a net positive and then the new layer on all the balance sheet optimization work that we're are doing that you need to us. Both on the loan side, where we're rotating lower-returning assets into higher risk-adjusted return assets. And even on the deposit side, we've got a series of initiatives in both commercial and consumer to improve our deposit profile. And we're excited about what that can contribute in 2019 as well.

And the question about the growth coming off of Q4, that's correct, Geoff.

Our next question in the queue comes from Ken Zerbe with Morgan Stanley.

One of your peers recently just announced that they purchased an online student lender, which obviously, can make him little more aggressive with the higher end of the student lending space. Can you just talk about your very broadly your interest in acquiring tech companies specifically, to help either grow your loan portfolio or to even deepen your penetration that you have with your current clients?

Brad, why don't you just address where we sit relative to student loans and the threat we possibly see from that or not?

Yes, well, we've talked about this a lot. We like the student loan business a lot. It brings the right kind of customers in, and we think we're really well positioned. We've competed directly with [indiscernible] for quite some time so we don't think this acquisition really affects our position in the marketplace. So we think we're extremely well positioned and complementing our ability there. And again, like you said earlier, Bruce, I mean this is an asset that brings the right kind of customers, we've stated in the very high-credit quality area of the asset class, and brings in very attractive customers and helps us with our mix shift to higher asset return -- higher risk-adjusted returning asset.

Yes. And then the second part, Ken, is I think our fintech partnerships if you look at what we've done have really been powering new capabilities. So it's a kind of build-versus-buy decision that we take. And if, for example, SigFig has a great robo-advisory product, why should we build that? Let's just figure out, which one is best on the market and then integrate it into our offerings. Same thing with our small business origination platform powered by Fundation. Why build that? You've got a great product capability. Figure out how to integrate it. So on and on and on, when you add up to 10 fintech partnerships, we've done a lot of that. And I think we've actually become quite good at surveilling the marketplace, having good prioritization of what's important and what can offer the best impact in terms of how we're running the bank and delivering for customers. And then we're effectively a very good general contractor, we know how to integrate these things reasonably, quickly and cost effectively.

And next question comes from Gerard Cassidy with RBC.

Bruce, when you look at the top-performing banks and you mentioned how that's -- your aspiration is to become more on these top-performing banks, what are some of the metrics that you identify as top-performing in your eyes, when you look at this aspiration?

Yes, that's a good question, Gerard. And I think it's not just financial so I think the kind of knee-jerk is well, he must be talking about a ROTCE or efficiency ratio or something like that. And I think to us a top-performing bank is one that delivers well for all its stakeholders. And so consistently we've had an agenda of improvement as that what do we do across, what we call, the 3C's, the customers, the colleagues, the communities. And I think we've seen tremendous progress there and there's more to go for us to be one of the most admired banks. We have to continue to drive our consumer J.D. Power score higher, our net promoter score higher. On commercial, we're pretty much there. We need more customers, we have kind of top-of-class customer satisfaction. On the colleague front, we want to be a great place to work and build a career. And so we have an organizational health index score that we're 2 points off the top quartile, so we've made a lot of progress from the middle of the third quartile, we're getting to the top quartile. If you're in the top quartile, you attract great people, you keep on and it helps drive stock outperformance so that's important to us. On the community front, we have taken our volunteer hours, almost tripled them from 50,000. When I walked in the door we had 135,000 this year, so really make an impact and spreading more as we make more money, we can also invest more money to make communities better places to live, work and play in. Regulatory, we needed completely clean regulatory dance card, which we've achieved after a lot of hard work so that feels good as well. And then coming back to financial measures, yes, we've got to continue to drive our ROTCE higher. We haven't done that through deals as some of our peers have over time, we've done it effectively through organic growth. And so I think we're closing in on the pack and I think we can continue over the next 5 years to do what we've done to keep driving upwards within the peer group.

Great. Appreciate those insights. And then just is a quick follow-up, you've obviously done a few acquisitions, Franklin, et cetera. Is there a area that you're looking that you need to add to your product capabilities that maybe something that on the horizon you can acquire? And as part of that do you have any goals of where you'd like to see your fee revenues as a percentage of total revenues?

I'd say, Gerard, we're kind of constantly surveilling for opportunities and where we've seen a kind of desire for scale, things like the Capital Markets, M&A capabilities. There's more that we can do there. We're not done. Similarly in Wealth, I think we got a great franchise in Clarfeld. There's more that we can do there. We're not done. Some of the other areas where we don't have capabilities, we can build those organically. So Don, I mean, you've added a par loan trading group, we're starting a little high-yield group. So there's things that we can do to expand our offerings, we're starting a commodities-trading service but we don't need to acquire things, we can just build those things. So I think you'll see us with a combination of building some things and looking for smart acquisitions. And to match earlier question, if you got to compare expending capital on these acquisitions with buying back your stock and it's a constant calibration that we're looking at. But so far, the deals that we've been able to find, we've been able to get them done at, I think, attractive ROICs and relatively short earn-back periods in terms of the impact on our tangible book value. Brad, you want to add to that?

Maybe just to add quickly to that, I think that over the medium term, we do aspire to grow fees faster than our net interest income line. And as that base has been growing over the past several years with the Fed hiking, just we've got to improve and innovate just to stay flat on the -- in the fee space. So I think we would see that improve a bit going forward, and we're in the high-20s right now, in terms of fees versus total revenues. And I think we'd like to see that get to 30 or higher.

Yes, I think like we've done is one step at a time, don't set the bar for where you want to be in five years. We're raising our ROTCE target modestly, and we think we can keep nudging it forward. The first step on the fees is to get back a three handle and get to 30 and then hopefully, over time, we can push it higher.

So the other thing that I was going to add, it's Don, we also view this, and you mentioned bright side of the house with partnerships very effectively. So in any expansion effort that were under way we look at organic build, we look at acquisition, we also look at partnership. And particularly, in our cash management businesses we've struck at number of partnerships, which have extended our product capabilities and will allow us to continue to grow that business.

And then the Commercial Real Estate, you might want to answer that.

Yes, and we have a very good partnership with the Prudential on permanent real estate financing where they do permanent real estate against our construction books, and we go to market together. We have another very interesting partnership on the equity side for REIT Equity, where we use an investment bank to comarket with us and do relending our REIT equity. So we've got quite a few of these, which allow us to broaden a service setting capture more of the opportunity with the clients.

Yes, good.

And the next question comes from the line of John Pancari with Evercore ISI.

Just back to credit report. Is there any part of the portfolio where you're seeing any indications of later-cycle behavior or any weakness you just want to flag? And then secondly, in terms of your credit outlook, the $400 million to $450 million provision guidance for 2019, what type of charge-off outlook does that imply in terms of a charge-off ratio for the year?

I guess the -- first of, we feel very good about the totality of the portfolio. If you look at Consumer, Brad, you don't really see any trouble spots.

We really don't, Bruce. It's very solid in performing in line with...

No migrations in delinquency bucket. So you're feeling very good and Don, you obviously, there's no hotspot...

All the indicators are improving and our workout teams are relatively quiet.

Yes. And I'd say, when we look at the guidance for next year, we had I think an even higher guide for this year and we beat that comfortably. There's always a presumption that credit will normalize. There's always a presumption that you're going to be building your allowance and so provision should cover charge-offs. That really -- that happened a little bit this year but not to the extent that we thought it would. And really that's because of the back book continues to clean up and provide offsets to what you would need to set aside for loan growth. So that could happen again this year. I think, we're just always going to be a bit conservative and put a number out there that implies that we'll see some normalization implies that we'll see a decent size build in those numbers. But again, right now, we don't see a lot of issue and so we could end up doing better as the year goes by.

Got it, Bruce. That's helpful. And then secondly just on the loan growth front, wanted to get a little bit more granularity on how you're thinking about the components of commercial growth? When it comes to CRE, you had solid growth here in terms of high single digits on the linked quarter but even low double digits on a year-over-year basis. Can it grow at that high-single, low double-digit pace again, in '19? And then same question for pure C&I. Can it be in the high single-digit range as well?

So when I answer that, I think you see lower growth levels in real estate and that's strategic. And we're being at the margin more selective on our real estate underwriting because there is some froth in that market. That's particularly true in the multifamily space where we actually downdrafted our growth about two years ago and that portfolio is beginning to mature. So I would say kind of low to mid-single digits is where you see our real estate growth. It's kind of same-ish thing. I've got -- got 5% to 6% in my mind on C&I growth. You could see us exiting portfolios as we drive towards BSO. So the actual gross growth could be lower than that as we trim the portfolio. That being said, we see very robust pipelines right now. And our origination pipelines are running higher than they were at this time last year so there is definitely client interest in engaging with this and borrowing money.

I think the fourth quarter was 8%, right?

Yes.

Year-over-year on commercial C&I. So that could still continue to run hard. I think what Don was saying there was that, that gives us the opportunity to review we have a quintile analysis, what our returns up and down the customer stack and if there's ones where we're not getting the right returns, we're not getting the cross-sell that we need, we can start to run some of those off to make room for new opportunities as they come on. So I don't think we grow C&I gross at 8, we grow it something less than that because we'll start to do that catharsis of moving some relationship.

And I think, back to the question that was asked before, I think what that does it allow us to move for fee lines also because we will be recycling for capital against higher opportunities on the fee side of the balance sheet. So look at loan growth and fee growth kind of in parallel.

Yes.

And we'll go to the next question queue comes from Marlin Mosby with Vining Sparks.

A little bit different take on capital. Talked a lot about share repurchase. But your dividend, you're guiding towards higher payout ratios, you had about 27% kind of ending this year. You're saying that next year is going to be 30%, 35% and then your medium term is 35% to 40%. One of the things that we did when we were managing a bank where we didn't think we're getting the valuation we wanted was the dividend is actually a better way to kind of show the strength of a growing franchise. If you're growing, the dividend really reflects the ability to be able to show the value of that income stream that you're creating. So I wanted to ask you in two cents, how do you bill? And like is that part of the progression that you're showing because that's going to be a very strong dividend increase over the next couple of years. And right now, you are at 4%-ish going to 5%. If you just look at the stock price that start to move up before we think you will be by the end of next year. And then what about the sustainability of that dividend. What do you think about through the cycle being able to keep a 40%. Payout ratio?

Sure. So I think that's well said and if you look at the year's results, we had 38% EPS growth, and we took our dividend up 45% with the hike that we just announced today. If you actually go back to October of last year of '17, 15 months we've taken the dividend up 78%. So when earnings are growing robustly, like they have been we're quite confident to raise that dividend and achieve a higher payout ratio. I think the payout ratios were artificially constrained in banking when the Fed had kind of the -- I don't know if it was a bright line, but there's certainly a line to pay attention to at 30%. We've had our earnings growing very rapidly, and so even though in the past we were targeting 30%, we exceeded our budget, and our earnings shot ahead and so we've been a little bit south of the 30%. I do think with the increase that we made today, we can get back above that 30% this year and then you could expect if you -- if we follow suit with what we've done the last two years, we've had a second hike later this year so as long as our earnings continue to move up. I do think that investors value the dividend, investors who own bank stocks like the yield but that's supplies. And so we're very sensitive to that. John, you want to add a few?

Yes, yes. Over time when you -- as you progress towards your target capital ratio and if you get to a level of stabilization there, you're going to basically think about solidifying that dividend in respect of your earnings being, as you can see it. Approximately 1/3 of your earnings in a given year and then you're looking for deploying capital, just in organic ways, it's going to take upwards of another third or more of your earnings in any given year and then you've got to rest to think about strategic investments whether that's small tuck-ins on the fee income side or giving it back to shareholders through buybacks. So that will change and vary over time but as a big picture, when you get to stabilization, that's sort of how we think about it.

And then a totally different thought process, competitive advantage-wise, when you look at what we were talking about, if some of the growth that you're getting is from some very specific business lines but when we're in the area, community banks are saying is they're kind of thinking about the Boston or New England areas, they want to be more like Citizens Financial. You've been able to competitively advantage yourself in that region. So want you to talk about that. And then on the product side. How do you think you're going to create that same competitive advantage in cash management as you're investing in that? That's a product that has a lot of competition in it. So how do you position yourself in that particular product as well?

It's Don, I'll answer that. So cash management, we -- so if you look at our cash management business, it breaks down into 3 or 4 different sub-businesses, so a traditional treasury services, which is our payments businesses, our credit card business, our trade finance business and our merchant services business. The overall business has actually been growing faster than the industry. So we've been putting investment in it over the last couple of years and it's been growing quite nicely, and we're embedded very well with our core client base. Bruce mentioned we're putting a lot of investment around our digital portal right now and expanding our capabilities to stay on par, if not better than a lot of the competition. So we expect to get continued lift and incremental lift of those investments. Really starting the back end of 2019 is what we're targeting. In terms of competition, with the community banks, one of the reasons we're trying to build the diversity of product capabilities is to be able to solve any problems that our clients have. And frankly, our product set when we engage with clients is now close to complete, so if it's [indiscernible] interest rates are currency and have commodities or if it's raising capital to build a facility or do a dividend to an owner or if it's just regular way working capital lending, I would put us up against anybody not just community banks but even the largest banks in our ability to actually problem-solve and help our clients do their most important transactions. A huge incremental element of that issue was the M&A acquisition we did and the quality of assignments we're getting on our clients most important actions, which is buying and selling companies, is quite strong right now. So I've got zero worry about our ability to compete particularly, in our target segment, which is that midsize, mid-cap kind of company where we're very relevant.

Brad, a couple of thoughts?

Yes. I mean, look we get the question all the time about our ability to compete in Petersburg and Philadelphia and Boston as some competitors are coming in. Bruce it goes back to a lot of things that you talked about earlier, which is we think we provide a great value proposition in those markets. We're very focused on exceptional customer experience. We've got a great presence in those markets, so we're strong on convenience. We've been investing heavily in digital. And you talked about some of the things that make a bank great and top performing. We're very involved in the communities of those markets, and we think that's tremendously valuable. So like Don, I don't have any concerns about our ability to compete head-on with anybody in those markets, whether it's a big national or whether it's a community.

And it's real strength, both on the consumer side and the commercial side.

Absolutely.

And in between with small businesses as well.

Exactly.

Our next question comes from the line of Lana Chan from BMO.

Just two quick questions. One on the fee income guidance for 2019, seems pretty strong. Did you give the impact of the CFA acquisition for 2019?

No, we hadn't. We didn't think that rose to the level of materiality as Franklin did.

Okay. And so drivers would primarily be what on the fee income side, in terms of 11% to 20%?

Yes. We had touched on that earlier. So it's on the commercial side, a bounce back in Capital Markets. Another strong year from what we call Global Markets or FX and interest-rate business and the introduction of some new -- a new platform, a new services in our cash management area and then on the consumer side, really well. I think we'll be quite strong even ex-Clarfeld. And then our card business, we've been investing in getting some growth there as well.

Okay, appreciate it. And on the -- on capital, in terms of your capital stack, I know you did some preferred in 2018. How do you feel about the capital stack now going forward?

I'll go ahead and take that. I think we're well position. I mean, I think when you look at where we stand, we have less than 1% of our -- 1 percentage point, if you will, in our Tier 1 stack in the 81% area, whereas most peers are over 1 percentage point, contributing to their Tier 1 ratio. So that's dry powder. We'll consider that over time as we think about optimizing capital. But as we've been able to grow our ROEs and our ROTCEs, then clearly the benefit of that preferred deal that we did earlier this quarter is very compelling. So again, we'll consider that over time in our submissions and our interaction with the Fed, but I think you could look at that as another area of opportunity and potential that we have versus peers. And we'll be trading that off against growth opportunities going forward.

And our next question comes from the line of Peter Winter with Wedbush Securities.

I was curious about deposit growth. Is the goal to grow it in line with the loan growth this year? Or could you do it -- or could be a little bit faster with some of the initiatives you have underway?

Yes, I think our goal is to grow deposits roughly in line with loans. We have -- we think about deposits -- really funding for loan growth and keeping that LDR in that range that we've talked about in the high 90s that you've seen from us. And I think that -- I mean that could come down a tick. But generally, that's worked well for us and has allowed us to continue on our path of driving net interest margin higher and driving ROTCE higher. And I think when you come back to the BSO program, we're looking to not only grow the overall level of deposits, but we're looking for ways to improve the quality of those deposits. And that's a big part of when we talk about BSO contributing in '19 and beyond. We've got a fair bit of opportunity within the deposit portfolio itself to contribute, so we're excited about that possibility.

And John, I was just going to add to that. One of the things that we have been able to do is to outpace some of our peers in low-cost deposit growth, particularly DDA. You talked about in your opening comments, and we really do with -- believe what -- some of the work we've done around value proposition and sophisticated data and analytics. That's something we can continue to do is to outpace competitors on low cost...

Yes. That's another area at upside if we can close the gap in DDA-to-total-deposits ratio. That would be very powerful.

Exactly.

Completely agree.

Can I just -- one, last one. Just on the mortgage market. It's gotten a little tougher, since you acquired Franklin American. I'm just wondering are you still comfortable with the guidance of 2% accretive this year, 3% next year?

Yes, I think, couple of things there. Sure, it's -- mortgage market is cyclical, and you've got to be thinking about that as your managing the business and Brad can comment on that. But as we look out, we're responding on the expense side and on the capacity side as a lot of mortgage companies are. And so you could see us continuing to aspire to hit those targets, maybe in a slightly different way. With a smaller mortgage market, you might see a tiny bit less on the revenue side, but you'll also see a little lower on the expense side as well. So I feel like we're still on track not only in the integration, but also in terms of what we expect for that platform to deliver. It's bringing a significant number of customers into the bank. We love the strategy over the long term that this platform provides us, and I think our guidance is still intact that we communicated earlier, maybe with possibly a slightly different path to get there.

The other thing that, Brad, you might briefly mention. I know we're running over here a little bit. But the mortgage business offers a great opportunity to innovate. So we're moving to a more digital model. We've got some fintech relationships teed up for this year, so we're quite excited about all of that.

That's exactly right, Bruce. We've made a lot of investments. We keep talking about the investments we've made in data and analytics capability but that really does allow us to grow our direct-to-consumer side of business. And that's really supported by a great digital offering. And so we do have some fintech partners that we're working with on the digital side that create a digital offering on the front end. So we think there's opportunity even beyond just sort of the dynamics of the market.

Sure.

And our next question in queue will come from the line of Saul Martinez with UBS.

I'll be quick. Just one quick question, the Citizens Access, it seems like you're ahead of the initial schedule in terms of the deposits raised, $3 billion. What sort of a reasonable expectation going forward for how quickly this can grow up over the next say year or 2? And what proportion of your deposits it can ultimately represent?

I think we may have covered this before. I'll start off. I think we look at this being less than 10% of our deposits over the long term rate. I mean, I think this is -- as we mentioned upfront, it's a relatively modest part of our overall deposit base, which is quite large. And so when you think about $3 billion, that's really around 2 percentage or a little bit more than 2% of our deposit base. It's incredibly important strategically though. This is one of the fastest-growing segment of the deposit markets in the United States. The customers are incredibly affluent. We're intent on a test and learn strategy so that we can drive some of what we learn from this incredibly value customer segment back into our branch businesses. So it has outsized qualitative importance to us over time, as I said, in all likelihood into single digits of total deposits. But important not only in the here and now, but also over time in terms of how we may want to expand our offerings on the platform.

I'd say, we -- if you look at what we raised, it was about $3 billion in slightly less than 6 months. That's $1.5 million a quarter. I think we'll have to decide as we go through the year to where do we want to put the throttle because it's quite price elastic. But I would think we could do $1 billion a quarter quite easily as we go through this year and still stay underneath John's let's keep it under 10%. And then the other thing I would say is that in addition to test and learn back to our core customers in our footprint, there's also an opportunity that we're really focused on is how we turn those kind of 1-product customers into more fulsome customers. And so there's testing and learning there as well as to now we have 75,000 new customers. What else can we do for those customers? We're servicing 200,000 mortgages with Franklin. We have through our merchant partnerships, over 1 million customers. And so it's I think really exciting to have those good digital capabilities, those data capabilities, and then start to figure out how can we drive new revenue streams and deeper relationships across that whole set of relationships that we're building. Okay, I think that's the queue. So we're glad we had a chance to stay around and answer everybody's questions today. And for all of you on the call, thanks for dialing in today. We certainly appreciate your interest and support, so have a great day. Thank you.

And that does conclude today's conference call. Thank you for your participation. You may now disconnect.