Citizens Financial Group, Inc. (CFG) Earnings Call Transcript

Good morning everyone, and welcome to the Citizens Financial Group Third Quarter 2026 Earnings Conference Call. My name is Denise, and I'll be your operator today. [Operator Instructions] As a reminder, this event is being recorded. Now I'll turn the call over to Chris Emerson, Head of Investor Relations. Chris, you may begin.

Thank you, Denise. Good morning, everyone, and thank you for joining us. First, this morning, our Chairman and CEO, Bruce Van Saun; and our CFO, Aunoy Banerjee will provide an overview of our third quarter results. Brendan Coughlin, our President; and Ted Swimmer, our Head of Commercial Banking, are also here to provide additional color. We will be referencing our third quarter presentation, which is located on our Investor Relations website. After the presentation, we'll be happy to take questions. Our comments today will include forward-looking statements which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are outlined for your review in the presentation. We also reference non-GAAP financial measures. So it's important to review our GAAP results in the presentation and the reconciliations in the appendix. And with that, I will hand over to Bruce.

Thanks, Chris, and good morning, everyone. Thanks for joining our call today. We delivered another good quarter in Q3 as our strong momentum continues. EPS growth was 8.5% sequential quarter, 34% year-on-year and ROTCE improved to 15.1%. We continue to deliver strong positive operating leverage, 1.8% sequential quarter and 5.3% year-on-year. Total revenues hit a record in Q3, paced by NII growth of 2.7% sequential quarter and up 13% year-on-year. Notwithstanding some interest rate movement and volatility during the quarter, we saw our NIM meet expectations with 2 basis point increase to 3.19%, which positions us for strong NIM expansion in Q4. Loans and deposits were broadly flat as expected, given some loan pull forward into Q2 and seasonality on deposits, which will turn favorable in Q4. Fees were down slightly, given volatile capital markets conditions, which resulted in some deals pushing into Q4, we still believe that market conditions remain healthy as we enter Q4 and our pipelines are very strong, particularly in M&A, which is at record levels. We do not see the current level of rates introducing any real stress on our various loan portfolios. Credit metrics remain broadly positive. Our capital, liquidity and funding positions remain strong. Given our consistent growth in earnings, the Board authorized an increase in our dividend of 13% to $0.52 per share. In addition, the board also increased the capacity of the company's common share repurchase program to $1.95 billion, an increase of $1.3 billion. Notwithstanding lower AOCI adjusted CET1 ratio in the quarter, we are comfortable operating with our gross CET1 a little above our 10% to 10.5% target range, which will still allow for at least $200 million in Q4 share repurchases. We continue to progress our strategic initiatives with good consistent progress across the private bank and well build-out, reimagine the bank, our consumer next branch project, attracting talent to the commercial bank and growing our New York Metro presence. We have significant resources dedicated to leveraging AI and to driving a strong cybersecurity framework and capabilities. Overall, there's lots to do, but we feel we are prioritizing and executing well. We feel good about our outlook for Q4, and we feel we are positioned well for 2027 in the medium term. Our view of the macro fundamentals remains positive. So we expect uncertainty and volatility to remain high. With that, I'll turn it over to Aunoy for the financial details. Aunoy?

Thanks, Bruce. Good morning, everyone. As Bruce mentioned, we delivered strong third quarter results. record revenue performance and expense discipline drove more than 500 basis points of positive operating leverage year-over-year. Referencing Slides 3 and 4, we delivered EPS of $1.41 for the third quarter and $0.11 or 8.5% improvement over the second quarter, and we saw solid improvement in ROTCE to 15.1%, up from 13.9% in the second quarter. PPNR was up 4.5% linked quarter and up about 19% year-over-year. Third quarter results reflect higher NII given continued net interest margin expansion, slightly lower fees and good expense discipline. With respect to our balance sheet, we continue to maintain robust capital, strong liquidity levels and a healthy credit reserve. Turning to Slide 5. I will cover our third quarter results in more detail, starting with net interest income, which was up 2.7% linked quarter given a 1% increase in interest earning assets and a higher net interest margin. Our net interest margin continued to expand, increasing 2 basis points for a 19 basis point lift compared with the same quarter last year. In the third quarter, the time-based benefit from terminated swaps contributed 2 basis points. while the benefits of fixed rate asset repricing and improved asset yields were essentially offset by funding cost as rates moved higher during the quarter. Importantly, average demand deposits were up 2%, which helped mitigate the increase in overall deposit costs, which were up 3 basis points. Moving to Slide 6. Fee income is down 1% linked quarter and up 3% year-over-year. Capital Markets had a very strong third quarter, with fees down slightly compared with the strong second quarter and lower than the exceptional third quarter last year, which benefited from deals being completed following market volatility earlier in the year. M&A fees were up significantly linked quarter. and our pipeline heading into the end of the year is very strong. Loans indications, bond and equity underwriting fees are slightly lower given market volatility. We continue to maintain strong market share, ranking as the #2 middle-market sponsor book runner for the last 12 months. Wealth delivered another red quarter, with fees up 7% linked quarter and 17% year-over-year, reflecting higher advisory fees driven by AUM growth in the private bank and in our retail network. Mortgage fees were lower primarily due to a negative net MSR valuation results of $13 million, given high volatility in mortgage rates, though servicing revenue provided a partial offset. On Slide 7, expenses were well managed and stable linked quarter. and our efficiency ratio improved to 60%. We delivered positive operating leverage in the quarter of 5.3% with year-to-date at 6.3%. Moving to loans on Slide 8. Average and period-end loans were both up slightly linked quarter, paid by growth in private bank and retail. Private Bank period-end loans were up $2 billion linked quarter, reflecting higher commercial line utilization and strong originations in high-quality residential mortgage and multifamily lending. Commercial period-end loans, excluding the private bank, were down $1.5 billion or 2% linked quarter given some loan pull forward into the second quarter. Third quarter results were driven by continued planned reductions in CRE, primarily given multifamily and general office paydowns as well as lower C&I line usage. Growth in period-end retail loans ex noncore was $565 million, led by real estate secured categories. This was partially offset by non-core portfolio runoff of roughly $300 million for the quarter. Next, on Slides 9 and 10. We continue to do a good job on deposits despite some seasonality, which should reverse in the fourth quarter. Average deposits were stable linked quarter, primarily driven by growth in commercial largely offset by lower consumer. Spot deposits were also stable linked quarter, reflecting growth in the Private Bank, which reached $18.5 billion at the end of the quarter and growth in commercial partially offset by a decrease in consumer. Our consumer deposits represent 63% of our total deposits, which compares favorably to a peer average of about 57%. Additionally, our mix of total interest-bearing and low-cost deposits was stable at 42% of total deposits. Moving to credit on Slides 11 and 12. Credit continues to be broadly favorable, with net charge-offs stable at 37 basis points compared with the prior quarter. On Slide 12, you will see that we had a modest reduction in the allowance along with the slight reduction in ACL coverage ratio to 1.47%. We continue to improve our portfolio mix with the reduction in general office and multifamily balances and strong originations of lower loss content C&I, residential real estate secured and high-quality private bank loans. The economic scenario we used was a little more conservative this quarter, reflecting the higher rate environment. As we look broadly across the portfolio, the credit outlook remains positive, though we continue to carefully monitor the macroeconomic environment. Moving to Slide 13. We maintained excellent balance sheet strength, ending the quarter with CET1 at a healthy 10.5% at the top end of our medium-term target operating range. We returned about $322 million to shareholders in the third quarter with $197 million in common dividends and $125 million of share repurchases. Cumulatively, we have now returned $1.24 billion to shareholders in dividends and share repurchases through the first 9 months of the year. Our AOCI adjusted CET1 ratio and TCE ratio ended the quarter at 8.7% and 6.7%, respectively. Notwithstanding this AOCI impact we remain confident in our capital strength and capital generation capacity. Moving to Slide 14. The Private Bank continues to make ebolent progress. The Private Bank again delivered strong deposit growth, ending the quarter at $18.5 billion. Importantly, the overall deposit mix and cost continues to be very attractive. The Private Bank also delivered solid loan growth in the quarter, adding $2 billion of loans to end the quarter at $11.7 billion. The loan portfolio maintains a healthy spread of approximately 4% over deposit costs. Client assets increased by $1.2 billion to end the quarter at $12.4 billion. We added another strong team in Tampa and additional bankers in Philadelphia this quarter, and we plan to continue to adding top-quality teams in key geographies. Moving to Slide 15. We are making very good progress executing our rematch in the bank program as we continue to leverage a host of new innovative technologies across the bank to simplify our business model, reshape our customer experience and drive a meaningful improvement in productivity and efficiency. Our key work streams are well underway, and we expect to hit our financial targets for the program with minimal net cost this year. We expect to exit 2026 with about $100 million of annualized pretax benefit then more than double that to $225 million by the end of '27, a little ahead of our original plan and then target at least $450 million of benefit as we exit 2028. Moving to Slide 16. We provide our outlook for the fourth quarter, which contemplates that the Fed raising its target rate by 25 basis points in December. We expect net interest income to be up about 2.5% to 3% driven by continued margin expansion to a range of 3.26%. Noninterest income is expected to be up approximately 4% to 5%, led by capital markets and wealth. We are projecting expenses to be up about 1%. This puts us on track to deliver over 600 basis points of positive operating leverage for the full year. The charge-off level is expected to be stable to down slightly, and we should end the year with CET1 at approximately 10.6% to 10.7%, including expected share repurchases of $200 million in the quarter. Looking out further, we continue to see a clear path to achieving our 16% to 18% ROTCE target by the end of '27. Slide 17 provides incremental details on our net interest margin progression to the end of '27. We continue to improve our net interest margin, and we project to deliver a 4Q '26 NIM in the range of 3.23% to 3.26% and in the range of 3.30% to 3.50% in 4Q '27. This projected margin expansion, combined with the increasing contributions from the private bank, our diversified capital markets businesses and normalizing credit should drive our ROTCE into our target 16% to 18% range. To wrap up, we delivered strong third quarter results. highlighted by record revenue and a robust level of positive operating leverage. Notwithstanding the continuation of volatility and uncertainty in the macro environment, we have a positive outlook for the fourth quarter, with good momentum across our businesses, continuing to drive strong earnings growth and solid operating leverage. We will continue to focus on progressing our strategic initiatives and delivering for our stakeholders. With that, I will hand it back to Bruce.

Okay. Thank you, Aunoy. Operator, let's open it up for Q&A.

[Operator Instructions] And our first question comes from Scott Seifers with TD Cowen.

Let's see, so it was great to see you guys reiterate the $3.30 to $3.50 margin by year-end '27. I guess since the last time you all addressed it, there has been a remarkable amount of change in the rate backdrop. So maybe I was hoping you could spend just a moment or 2 sort of discussing what you see as getting sort of tougher and easier in median neck, whether it's deposit pricing pressures potentially or things that get moved one way or another with all the moving parts.

Sure. So I would say the outlook continues to be positive that we have a number of drivers that are going to work for us regardless of what happens in the rate environment, the so-called time-based benefits as we describe them with legacy swaps accounting drag kind of rolling off every quarter. We have a big slug of that in the fourth quarter, and that continues a bit into 2027. We also have the front book, back book dynamic that is we're pretty confident it's going to be there that the yield curve should continue to stay relatively steep and that provides further lift. Beyond that, then a lot of the remaining kind of variability is what happens with how managing the balance sheet. I think we have a lot of confidence. You can see the level of noninterest-bearing deposits has held steady through kind of the last period with a lot of volatility. We really focused on growing low-cost and deep relationships across consumer and private bank in particular. So that's positive for the cost of funds. And I'd say more broadly, we're kind of have 3 basic segments that we can optimize in terms of where we're taking our interest-bearing deposit funds. And so I think we're doing a good job there as well. If you look at the quarter relative to others, the total deposit costs are only up 3%, which is kind of certainly on the good side of others. So I feel good about that. And then on the loan side, we continue to focus on deeper relationships and using our balance sheet in places where we can really be relevant to the customer, whether it's in commercial, consumer or the private bank. And we see, I think, good opportunities there to grow our market share. We're focused on commercial and lead-left relationships and focusing in the right sectors where we think we can get decent spread and decent cross-sell. The Private Bank also continues to grow loans at a good clip, and the mix is pretty attractive from an overall yield standpoint, it's accretive to overall NIM. So those are the things I would say, Scott, that we feel good about our ability to drive upwards into that range. And we are -- lastly, I would say, we are asset sensitive. And so assuming that the Fed goes another hike or to that will be accretive to the NII outlook. So anyway, overall feeling quite confident. I don't know if any of my other colleagues now if you want to add anything to that?

No, Bruce, I think you covered it. The only thing I would say, Scott, is you have seen our past performance, and we have core NIM by 19 basis points since the last -- since 3Q of last year. So that augers well for this performance to continue.

Anything from you, Brendan, on deposit.

I just -- not a lot of 1 or 2 quick details to put some color on it, but the private bank, we're up $6 billion year-over-year, and it's remarkably consistent of $1.5 billion on average, with some quarters a little bit better, some quarters a little bit lower. But when you even look at an 8-quarter view, $1.5 billion growth with the mix being consistent of 33-ish percent DDA and 40 -- to 40s of low cost, and we see that continuing into the future. So that's idiosyncratic to us, and it's helping us keep DDA in a good position and outperform, which should help deposit costs. Consumer while spending is still high and the average consumer is still really, really healthy overall, we continue to see our metrics outperform peers. And that's been a trend for 7, 8, 9 years at this point, and we expect that to continue. So that's the majority of our deposit book. So I feel pretty good about I feel pretty good about that. And we're allocating loan capital, as Bruce mentioned, to the right places with yields that will drive NIM accretive activities on all sides of the business.

The next question comes from John Pancari with Evercore ISI.

Just on the deposit side, just wanted to get an updated thoughts post the spike in rates and what you're seeing around deposit pricing and the pressure there, both competitively and the rate backdrop, how would you characterize the trajectory of your deposit costs in coming quarters? Maybe give us an updated deposit beta expectation? And then any updated thoughts around that? I know, Bruce, you mentioned the noninterest-bearing balances and the favorable trajectory, how should we expect that, that trend in terms of the mix of noninterest versus interest-bearing, how that grosses in this type of rate environment.

Sure. I'll start and quickly hand it off to no. But I would say Scott, it's always -- it's any quarter we talk about. It's always going to be competitive for deposits. And so the question is really, where is your focus? And what are the areas that you think you can lean into and developed good deposit performance and trajectory. So I wouldn't call that out as something that we haven't seen before. It's intensifying. I think it's kind of level and steady with what we've seen before. And we've been kind of through an up cycle, and then we'd start going through a down cycle and now we've stopped, and we've gone flipped back to an up cycle. And so when I think about it, there's no reason why this up cycle, if it's 2 or 3 hikes shouldn't really retrace what we saw coming down or what we saw the last time it went through [ 3 75 ] to [ 4 25 ] or [ 4 50 ] and those were really kind of deposit betas in the high 40s. So I don't think I'd call out anything different than that. That would be our expectation. And then I'll let no and Brendan again talk more about some of the deposit trajectory, but the confidence in that noninterest ability to grow that, particularly in the private bank, but also in consumer. And then we have some strategies to grow it in commercial, but we're not counting on that as much, but I feel really good about that. So Aunoy?

John, I would say we are pleased with our deposit performance. As Bruce mentioned, like as when rates were coming down, we were roughly around in the high 40s beta. So as rates pace pick up. We expect to be in that level. And as you have seen, like our deposit cost performance, total deposit cost pro forma this quarter is only a 3 basis point increase. And even in the last quarter, we also had a very good deposit cost performance. So we are actually -- we are growing deposits with our clients and making sure that we get the operating balances that's there. I think Street has some seasonality in deposit losses, I think which will trace back in 4Q. So 4Q deposit growth across our 3 businesses should be quite solid. And then as Brendan mentioned earlier, the private bank with over 30% of DDA balances is growing nicely, and we have been growing nicely every quarter and that gives us a lot of confidence, and we have good pipeline against that. With that, I'll pass on to Brendan, to see if you have any comments.

Just competitively, just reiterate Bruce's point that while things are been better with time any more competitive than what we saw in the last 4 to 6 quarters. So we're seeing deposit yields come up in terms of lead offers from a lot of the banks, but in line with what you'd expect with rate forward outlook. I would just say we have, and I mentioned this on prior calls, a few times, but I think we have a more diverse set of levers to manage our deposit costs than our peers. Obviously, the private bank being idiosyncratic to us and the growth that we're seeing an outsized mix of DDA and low cost is one very big one for us in helping us manage deposits and I think giving us more flexibility than maybe we've seen in some other peers. But when you unpack retail book, which is still the majority of our deposit business. We've got $8 billion or so in CD rollovers every quarter. We tend to get about 100 basis points of net benefit in deposit yields and we retain 85% to 90% of those balances in various different ways that should sustain into the future. That gives us a positive offset to increasing costs in other parts of the book. we have Citizens Access that is a lever that allows us to make smart in-quarter choices on how to best optimize our deposit yield, whether it's better to put some in Citizens Access or whether it's better to give it to kind of a core retail bank or commercial or private bank, we've got -- we've got that as a lever as well. And then our outsized performance on DDA obviously gives us some flexibility on when and how we put interest-bearing costs back into the system. So anyway, I feel really good about the diversity of our business model and the levers that we have, and I think you see that this quarter as Aunoy and Bruce pointed out, in our interest-bearing and total deposit costs being better than what you're seeing in other prints and I think that should continue.

Okay. Great. Brendan, maybe just quickly on the loan side, just given the other, could you maybe just comment on demand? And particularly on the commercial side, are you seeing any erosion in demand or CapEx plans or anything point to maybe some moderation amid the higher rate environment? .

Ted?

At this point, we haven't loan demand actually in the last couple of weeks started to pick up a little bit as we got into the fourth quarter. So it's certainly a lot of conversations we're having with our customers. But up to this point, our customers have really not changed their desire to borrow money.

And I would just add some color on that, too. This whole AI ecosystem build-out is kind of full on. So it's very strong dynamic, and that kind of cascades into a lot of the supply ecosystem that kind of gets those centers built. And even with higher rates, the kind of desire to get the compute power in place the players aren't really batting an eye last year, up [ 25 ] or the back end of the curve is moving up a bit. So I think that's relatively inelastic to pricing. There'll be kind of some other sectors, maybe you get another couple of hikes and then maybe some of the PE and leverage sector starts to become a little more circumspect, but we haven't seen that as of yet.

Your next question comes from Ryan Kenny with Morgan Stanley.

On the fee income guidance for the fourth quarter, it sounds like you're pretty optimistic on capital markets pipelines coming through. And so just wondering, what the conviction level is there and how sustainable the demand in middle market sponsor activity fuels?

Ted?

Sure. We feel very strongly about where we are in the capital market side right now. Our pipeline, especially on the M&A side, have never been higher than they are today. And not only that, the quality of the deals that we're looking at and executing now are just continue to get stronger. Our fees per average transaction continues to go up. And we have a really huge backlog as we think about fourth quarter and really into 2027. The DC or the debt capital market side of our business, we had a couple of deals slip from the third quarter to the fourth quarter. So we started off the fourth quarter on a really good start. And the pipeline continues to grow there. I think the only offset of that could be if each going up higher in the fourth quarter that you may see some of the opportunistic bond refinancing to push out. But at this point, we haven't seen that occur. And then the equity business, the backlog for all of us is pretty strong on the equity side. We're waiting to see some big transactions clear the market. If they do, I think that's going to be a very good quarter for equity. So all in all, we feel very, very strongly about where we are entering the fourth quarter.

Yes. And I would also point to -- it's not just a capital market story. We've had kind of nice growth, particularly in wealth. We usually get some seasonality in some of the consumer fee categories. So I feel good overall about that guide.

And then in terms of private credit competition on the loan side, any change there?

I would say no. There was obviously some drop-off in the second quarter when there was more noise around private credit. We saw private credit come down a little bit on leverage come down a little bit on the size of their commitments, but that's kind of stable off -- or leveled off in the third and fourth quarter. Private credit still anxiously still trying to put money to work and we're kind of indifferent to them from our side, whether they -- if they -- if private credit is more aggressive to help our CCS business or -- and if they do less, it helps our syndication business. So both ways, we feel relatively comfortable but we really haven't seen much of a difference in their behavior over the last 2 quarters.

Your next question comes from David Chiaverini with Jefferies.

Really strong growth in the Private Bank again this quarter. Can you talk about the drivers behind that strong growth and the outlook from here?

Sure. There's a number of them. I would say first is rand and is continuing to scale in the markets that we're in and both in terms of visibility, but also the number of boots on the ground. So when we started the build-out, we were -- we started with 150 people back in 2023. We're now up to almost 700 people. We're expanding markets, as you heard from us this week. We've built into Southern California. We'll continue to take density and Northern California or Boston and New York and Florida markets are expanding. We opened a new office in West Palm Beach. We just opened a small office in Philadelphia this week, which is the news we opened a small office in Tampa. And we're now up to 12 wealth teams that are both bringing assets under management, but also referring bang over. So -- and we expect that to continue. We have 10 PBOs. We expect more to open of 2027, and we continue to add relationship managers and wealth managers as we find high-quality folks that can join the platform and meet the bar that we hold for business. The other point I would make is that the folks that we brought over early have a lot of client followership from their place. And while we've seen an enormous amount of their clients follow over, there's still a lot more to go. I'd say their books of business are at, call it, the 50% to 60% level on average on what they were prior at the old institution. And so we're seeing a slow steady drip of new client activity coming over that knew them in the past. And so the whole process of reassembling their book story is not complete. And then lastly, the value that the commercial bank, in particular, is driving for the private bank in terms of referrals and our one citizens mantra ever been increasing as we put our capital markets business, our IPO capabilities, our M&A advisory capabilities, liquidity events that are happening in the partnership amongst the teams is driving a new source of business for the team that didn't have before. And so all of those factors are increasing and continuing to fire on all cylinders. So we expect the forward outlook of the business to be steady at the level of growth, and you've seen that from us. We haven't seen it deteriorated at all. And in fact, probably you see the loan book is actually accelerating with 2 quarters in a row at $2 billion in growth in linked quarter. If we were talking last year, we were probably at $1 billion linked quarter growth. So we're seeing some mentions of not only steady, but also accelerating momentum. And there's nothing that we see in the near to medium term that would suggest that would slow.

And I would just add one thing is not only are we getting the growth, we're sustaining the returns on the business, which is important. So it's kind of acting as a locomotive to pull the overall ROTCE hire for the company as it grows.

Very helpful. And Bruce, you mentioned about the AI build-out is going strong. To what extent is Citizens participating in financing this build-out?

Yes. So we have a good position in this space, partly because we went out sometimes it's better to be lucky than good. I'll just say. But our timing on acquiring DH Capital, which was a digital infrastructure lead adviser really got us a great position, understanding kind of what was happening and owning key relationships and having kind of that front row seat to really see that it was flipping from just a pure more advisory business to a financing business. And so under Ted's leadership. We've kind of brought a strong financing team to work with DH Capital and really participate in a lot of those financing transactions. We are disciplined on kind of what we want to hold ultimately on our balance sheet. So the objective ultimately is to participate in some of that early construction lending opportunity, but then actually move it on into more permanent financing like the bond market, and there's a lot of fees that can be made through that whole process and also some spread income, but we have well-defined buckets as to how much we want to hold and we're also hedging some of those exposures as well because even though it seems like you can't miss right now in the data center space, you're kind of always wondering, does the pin go in the bubble someday. And so we have to think about those scenarios as well. But I think we played it exceptionally well. I'll turn it over to Ted for any more color.

The only thing I would add is the vast majority of our exposure to this space is in -- with companies that are lessees are, first of all, in the development companies of the data center build-out and the lessees are vast majority of them are investment grade per sale or so. We feel very good about what exposure we've taken there. and we're not relying a lot on speculative stuff. We're doing most of it with committed power, committed building and regulatory approval already. So we're not doing the more risky -- the vast majority of our stuff is not the more risky stuff that you're seeing being done out there.

The next question comes from Erika Najarian with UBS.

Just taking a step back, your net interest income guide for this year is 10% to 12%. As I think about Slide 17, in theory, just the time-based benefits would get you to [ 3 35 ] by 4Q, '27, you're asset sensitive your earning assets in the third quarter grew 5% year-over-year. You feel great about both the liability and asset side of your balance sheet. Again, like why should NII growth slow down from that 10% to 12% in '27 as what is it -- as what consensus is assuming consensus assuming 9% NII growth which is slower than the 10% to 12%. Given the NIM benefits plus it seems like earning asset growth is still pretty decent. Why would it down? .

Well, first off, Erika, we are not going to give 2017 guidance yet. We do that in the January call. So a nice try on that one.

I had to.

But I feel the one thing that you might not grow, and I'm not saying that that's where it's going to land, but why the consensus may be less because we were front loaded with our time-based benefits. And so that was very significant NIM expand. And so as the noise said, up 19 basis points year-to-date, a big fourth quarter, are we going to repeat that. We don't have as much time base when you look out into '27. And so I think we'll still have solid NIM expansion, but it won't be as much and the balance sheet dynamics, we feel really good about. So if, in fact, it turned out to be kind of around 10% instead of over 12%, that's still pretty good. And that's still creates a very positive dynamic around overall revenue growth, positive operating leverage, strong EPS growth and ROTCE improvement and getting us to that 16% to 18%. So all of that is set up very well. That's what gives us a high degree of confidence that not only are we going to have a strong Q4, but we're going to have a good 2027.

And you -- and correct me if I'm wrong, but you had that ROTCE target, but before you introduced the concept of reimagined the bank it was reimagined the bank always sort of part of the plan in terms of getting you to 16% to 18%? Or could that be sort of accretive in terms of where you could land in the range?

Yes. So we always held that outside that wasn't built into getting the 16% to 18%. We're doing that kind of through the NII tailwinds through the business initiatives that we have like Private Bank and continued improvement in the credit as we burn off the drag from the office charge-offs and the capital buybacks, et cetera. So anyway, we can get there without that. It's incremental, and we'll have an opportunity to make some decisions. That's one of the things I think we'll focus on in January. You may have noticed, but we had initially when we unveiled reimagine the bank, we said we'd hit a [ 200 ] run rate by the end of '27 fourth quarter, we bumped that up a bit to [ 225 ]. Maybe there's a chance to do more, but whatever in-year benefits we have in '27. First, they have to cover onetime costs, but then there's something that will flow through the bottom line. And the question is, do we let it flow all the way through? Or do we turn around and say, let's go a little faster with the private bank or let's go a little faster with our next initiative, let's let Ed go out and hire a few more commercial bankers who are beating the door down, by the way, to get on the platform, which is a good place for us to be. But typically, when you've seen us run things like top we just meld that into overall operating leverage. And so there is some flow through to the bottom line, but you also can look at what are the things that we really prioritize in terms of our investments. you're seeing across the industry, a lot of folks are growing expenses kind of high single digits at this point. And we're still kind of locked in around, let's keep it under [ 5 ], even with strong revenue performance that's going to put a little upward pressure on the [ 4.5 ] target at the beginning of the year. It's still managing it to under [ 5 ]. And I think having that discipline, results in that operating leverage, which results in the high EPS growth and getting to the ROTCE promised land. It's unlikely that we'll -- when we give you the guide that we'll be relaxing that discipline. I think it's still important to set priorities and to stretch some of that investment out over time so that we can land the plane in the 16% to 18% territory.