公民金融集团 (CFG) 2026年第三季度业绩电话会：营收创历史新高，净息差提升

在净息差持续扩大和费用有效控制的支撑下，公民金融集团（Citizens Financial Group，NYSE: CFG）创下2026年第三季度营收历史新高。管理层预计第四季度息差将进一步改善，同时资本市场和财富管理业务将助力非息收入增长。

核心要点

• 第三季度每股收益（EPS）达1.41美元，环比增长0.11美元或8.5%，同比增长34%。有形普通股股本回报率（ROTCE）从第二季度的13.9%提升至15.1%。
• 净利息收入环比增长2.7%，同比增长13%。净息差环比上升2个基点至3.19%，同比2025年第三季度上升19个基点。
• 公民金融集团实现5.3%的同比正向经营杠杆。费用环比保持稳定，成本收入比改善至60%。
• 私人银行部门期末存款达185亿美元，贷款环比增加20亿美元至117亿美元。客户资产增加12亿美元至124亿美元。
• 董事会将季度股息上调13%至每股0.52美元，并将普通股回购额度扩大13亿美元至19.5亿美元。
• 管理层预计第四季度净利息收入将增长约2.5%至3%，净息差将达到3.23%至3.26%。

关键财务数据

业务与经营表现

私人银行仍是主要增长引擎。存款达到185亿美元，期末贷款环比增加20亿美元至117亿美元。贷款组合保持了比存款成本高出约4%的息差。随着在特定市场的持续扩张，公民金融集团还在坦帕新增了一支团队，并在费城引进了银行家。

财富管理手续费收入环比增长7%，同比增长17%，反映出咨询费的提升以及私人银行和零售网络管理资产规模的增长。房贷业务手续费有所下降，主要是由于抵押贷款利率波动导致抵押贷款服务权（MSR）净估值产生了1300万美元的负面影响。

资本市场业务手续费较强劲的第二季度略有下降。然而，并购（M&A）手续费大幅增长，管理层表示并购项目储备达到了历史新高。部分债务资本市场交易从第三季度推迟至第四季度。

平均贷款额和期末贷款额均环比微幅增长。私人银行和零售业务的增长抵消了私人银行之外的商业贷款余额下降。不含私人银行的商业贷款减少15亿美元（或2%），原因是第二季度前期贷款活动集中、计划内减少商业地产风险敞口以及工商业（C&I）信贷额度提取率降低。

平均存款额和期末存款额保持稳定。零售存款占总存款的63%，高于管理层引用的同业约57%的平均水平。无息存款及其他低成本存款保持稳定，占总存款的42%。

管理层业绩指引

公民金融集团对第四季度的展望假设美联储将在12月加息25个基点。管理层给出了以下预期：

• 净利息收入增长约2.5%至3%。
• 净息差达到3.23%至3.26%。
• 非利息收入增长约4%至5%，主要由资本市场和财富管理业务领跑。
• 费用增长约1%。
• 2026全年实现超过600个基点的正向经营杠杆。
• 净坏账核销率保持稳定或略有下降。
• 年末 CET1 比率约为10.6%至10.7%，其中包括第四季度2亿美元的股票回购。

管理层维持其中期目标，即到2027年第四季度净息差达到3.30%至3.50%，且到2027年底 ROTCE 达到16%至18%。公司未提供2027年的详细业绩指引。

“重塑银行”（Reimagine the Bank）计划预计到2026年底将带来约1亿美元的年化税前收益，到2027年底带来2.25亿美元，到2028年底至少带来4.5亿美元。管理层表示，该计划在2026年的净成本极低，而一次性成本将在2027年继续抵消部分收益。

风险与关注事项

更高的利率可能会推高存款成本，不过公民金融集团预计其存款 Beta 值将维持在40%的高位区间。管理层还强调，该银行属于资产敏感型，这意味着随着浮动利率贷款重新定价，利率上升应会对净利息收入带来正面贡献。

利率波动在第三季度将经 AOCI 调整后的 CET1 比率拉低了约60个基点。因此，管理层可能会在继续回购股票的同时，使报告的 CET1 比率略高于其10%至10.5%的目标区间。

资本市场交易的择时对市场波动依然敏感。尽管管理层形容当前的并购和股票业务储备强劲，但更高的利率可能会推迟择机发生的债券再融资或交易交割。

信贷趋势总体保持良好，但公民金融集团继续监控商业地产（包含办公楼和多家庭住宅）风险敞口。管理层还承认数据中心融资存在潜在的长期风险，并表示已限制资产负债表敞口，主要聚焦于已获得电力和租户承诺的项目，并在适当情况下采用套期保值策略。

分析师问答环节要点

管理层将截至2027年的预期息差扩大归因于历史套期保值/互换相关会计拖累的消除、固定利率资产重新定价、资产负债表优化以及低成本存款的持续增长。由于时间相关的收益集中在前中期释放，管理层指出2027年的息差扩大程度可能不及2026年显著。

公民金融集团预计第四季度零售、商业和私人银行业务的存款都将实现强劲增长。管理层还预计，到年底，联邦住房贷款银行（FHLB）借款将从约70亿美元下降至低至中个位数十亿美元级别。

第四季度初期，商业贷款需求已开始改善。管理层重点提到了与人工智能（AI）和数据中心基础设施相关的融资活动，同时指出公民金融集团对保留在资产负债表上的资产持选择性态度。

中期来看，私人银行的回报率预计将维持在20%至25%的区间。贷款增加和持续招聘可能会轻微降低回报率，而轻资本的财富管理收入增长将起到抵消作用。

在资本分配方面，管理层重申打算在第四季度完成至少2亿美元的股票回购。公民金融集团表示，每季度通过净收益产生超过30个基点的资本，这在向股东回报资金的同时，为其重建资本储备提供了空间。

业绩电话会议完整文字记录

完整财报电话会议逐字稿

管理层陈述

Operator

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.

Chris Emerson

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.

Bruce Van Saun

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?

Aunoy Banerjee

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.

Bruce Van Saun

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

Operator

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

分析师问答

Unknown Analyst

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.

Bruce Van Saun

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?

Aunoy Banerjee

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.

Bruce Van Saun

Anything from you, Brendan, on deposit.

Brendan Coughlin

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.

Operator

The next question comes from John Pancari with Evercore ISI.

John Pancari

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.

Bruce Van Saun

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?

Aunoy Banerjee

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.

Brendan Coughlin

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.

John Pancari

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? .

Bruce Van Saun

Ted?

Theodore Swimmer

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.

Bruce Van Saun

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.

Operator

Your next question comes from Ryan Kenny with Morgan Stanley.

Ryan Kenny

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?

Bruce Van Saun

Ted?

Theodore Swimmer

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.

Bruce Van Saun

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.

Ryan Kenny

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

Theodore Swimmer

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.

Operator

Your next question comes from David Chiaverini with Jefferies.

David Chiaverini

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?

Brendan Coughlin

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.

Bruce Van Saun

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.

David Chiaverini

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?

Bruce Van Saun

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.

Theodore Swimmer

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.

Operator

The next question comes from Erika Najarian with UBS.

L. Erika Penala

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? .

Bruce Van Saun

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.

L. Erika Penala

I had to.

Bruce Van Saun

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.

L. Erika Penala

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?

Bruce Van Saun

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.

Brendan Coughlin

Bruce, the only thing I would add, Erika to that is Bruce's point around the onetime cost. So this year, and reimagine the bank was essentially breakeven. Next year, we will see some benefits flow to the bottom line, but there's still a meaningful amount of onetime costs. So when you start to think about the impact to ROTCE. And the reason why RTB was contemplated really in our guidance because we're talking about 2027. So when you think about the '28, '29 and beyond, when the onetime costs dramatically reduced, that's when you're really going to start to see the net impact of that, whether it's the fuel reinvestment on ROTCE accretive activities or whether we're going to drop some to the bottom line or likely a height of both. So anyway, that's -- that's one way to think about it as well is take a little bit further past the 2027 when you think about the long-term implications of reimagine the bank.

Operator

Your next question comes from the line of Chris McGratty with KBW.

Christopher McGratty

Just a follow-up on the 16% to 18% for a moment. I think in the prior, you said get into the range by 4Q '27, which is a seasonally pretty strong quarter. given how the world has changed and reimagine the bank a little bit better than prior, do you have a bias within that as a jumping off point? I know it's kind of a nuanced question. But within the 4Q '27, it feels like it might have been letting the low end, but any color would be great.

Bruce Van Saun

Yes. I think the other wild card that you didn't mention is really the AOCI impact, which kind of hurts your tangible equity. But in terms of giving you a little tailwind in the ROTCE calculation. It certainly does that. So anyway, I wouldn't rates are going to move around and we'll see where we are in January when we give you the guide. It's possible that, that could pull in, and we don't have to wait all the way to the fourth quarter.

Christopher McGratty

Okay. And then on that, the $200 million for the fourth quarter for the buybacks is a good number. Does the -- how are you feeling about just the movement in adjusted CET1 ratio, given how sharp the move in rates were I know it obviously dropped in the quarter and it can reverse. But I guess, internal debate about pace of buybacks given the move in the bond market, any color there?

Bruce Van Saun

Yes, we called out in the prepared remarks that we're monitoring those ratios, the adjusted ratios. But -- and so as a result, we may let the CET1 gross ratio move up a bit above the high end of our range, 10.5%. We had been operating kind of 10.6%, 10.7%. It's likely that's where we'll be at the moment. But there's a lot of cross currents taking place that would factor into our decision-making. One is when the Basel III comes into effect and we get RWA relief, that's about 110 basis points. And so the fully phased-in calc right now with AOCI from a regulatory standpoint, it actually would come in over time. But if you want to take the hit on AOCI, you should get the benefit of the RWA. And so what's a [ 8 7 ] ratio with the RWA overlay on that, it goes back up to [ 9 8 ]. So that's just one thing to think about there.

And then you look at what happened back in '23, the overall industry kind of adjusted ratios were much lower. And so we have kind of build capital over time. And so we feel we can certainly operate at these levels. And I think the latest kind of SCB indicative calculation that the Fed did show that we've done some really good work on the balance sheet in terms of running off auto and running down CRE and things like that. So anyway, we feel confident that we can operate at these levels and we take a little bit of precaution and let the gross ratio drift up a little bit. But I want to be in the market buying back the stock. I think the stock is cheap. I may sound like a broken record on that, but I think the stock below its fair value. So we're going to take advantage of that.

Theodore Swimmer

The only other thing I would add, Chris, is like, look, we are generating a lot of capital. Our capital capacity generation is quite high. So yes, maybe the AOCI pretty well and move in rates in the third quarter. So that lost 60 basis points, but we generate more than 30 basis points of capital every quarter through our net income generation. So if you think you put that into context of that.

Operator

Your next question comes from Ebrahim Poonawala with Bank of America.

Ebrahim Poonawala

I guess maybe just Bruce, following up on what you talked about with AOCI. And just talk to us, like do you think about tangible common equity in the construct of wanting to be, over time, around 7% or above. We often hear that the rating agencies are sensitive to that. Just how do you -- it's not a binding consent, but how do you think about the TCE ratio in the context of managing capital?

Bruce Van Saun

Yes. I think it's another thing to look at. It's not a binding ratio. But I'd say the market stakeholders look at that. And I'd say 7% as kind of level that you'd like to be at or above would be a reasonable level that you point out. So we're a tad below that. But to [ Joy's ] point, we're building capital and we are going to retain some of that to get our capital position a little higher. So I don't think that's going to be a problem to get there and to operate there. And if we're a little bit below it. It's not -- there's plenty of banks that are kind of between 6.5% and 7%. So I don't see it as a relative issue compared to others.

Ebrahim Poonawala

Got it. And as we think through next year, you have so many initiatives going on, maybe if Bruce or Brendan, if you don't mind spending some time, in terms of Matt coming on to the bank, just the actions you've taken to sort of improve the consumer franchise over the last 5 years, if we can double-click on either next or even outside of next where is the opportunity within that consumer footprint as you think about the next couple of years?

Brendan Coughlin

Yes. So Matt's been an excellent add to the team, and you've seen us reload the entire leadership team in many ways over the last 12 to 18 months, and Matt certainly has been no exception to that, he had a huge impact. As you know, our history around the consumer bank transforming it from a makeup of a bunch of acquired thrifts to one that has a really well-fortified foundation with a strong deposit base was our principal objective over the last 10 years, and we did that and then we turn our attention to the other side of the balance sheet to make sure the loan book was relationship-oriented, higher-yielding and driving accretion across all the other products and services. And we've done that, too, as we run down all the non-core parts of consumer that were helpful in our early days, and now we're pivoting to more durable, sticky revenue streams.

And now when you look at the revenue streams coming in from consumer, you're seeing the quality of the deposit franchise and now you're starting to see incredible growth in wealth management. We talk a lot about the Private Bank for Wealth Management, what we probably don't talk enough about is still about 65% of our revenue streams in wealth management are coming from the part of the business that's connected to retail. And that business is sales are up 30% to 35% year-over-year, and that's directly as a result of the flight to quality and the focus on the consumer business on getting net primary banking households, the right mass affluent mix, which we skew 3% to 4% to 5% higher. So as Matt takes a look at the business, I think we've got an incredibly strong foundation, but one that still has a tremendous amount of opportunity in that's whee next really comes in. As we're thinking about -- we talked a little bit about this last quarter, but there's a couple of lenses to it. 3 real lenses.

One is adding specialty job families that drive revenue accretion for massive fluent and affluent customers. So we're adding business bankers to the platform. We're adding private client bankers to the platform, which is really our version of private banking light, if you will, for the mass affluent customer that sits in the retail business and adding wealth managers to the platform. We've continued to do that every quarter, adding 10 or so new wealth managers a quarter. And our sales force is up to approximately 450 wealth managers that sit in the retail branches. We're going to continue to do that and drive revenue accretion depth and share of wallet. And then on the physical side, really, there are 2 big things. And the goal here is to position us for long-term outperformance on deposit growth, particularly low cost and household market share capture. So we're going to really do some further surgery to put the business in a position to get that growth. We're going to take down some of our in-store franchises or physical points of presence to replace those with much more impressive stand-alone branches that are more oriented towards the massive fluid and affluent customer base that we have in retail.

And then in some of our markets, we think we have the ability to densify as a post-COVID world settles and you see us take the expense out of the in-stores and replace that with an investment in physical branches that will give us further operating leverage and outsized deposit growth down the road. So the mindset in the retail franchise is incredibly proud and confident in the foundation we've built, but that positions us for the next round of growth going forward, which we equally have confidence in, but you'll see us pull some different levers that should build a sticky durable set of revenues that we hope to have multiple accretion over time and allow us to do things in the commercial bank and the private bank to continue to have outsized growth in consumer with that granular deposit business.

Aunoy Banerjee

And then Ebrahim, I would say you can already see it in some of our numbers, the wealth fees line that has been grown with the retail network in place. And similarly, on the deposit side, the structural deposit benefit that we get with the DDA percentages, that's really helpful. So you can see it already in our numbers coming through.

Operator

Your next question comes from the line of Ken Usdin with Autonomous Research.

Ken Usdin

I wanted to have a follow-up on the deposit side. You mentioned in the slides that there was some seasonality in consumer end of period deposits were kind of flattish on the interest-bearing side, and granted understanding the year-over-year growth, understanding the good DDA growth. Just wondering like what that seasonality is because you had more wholesale funding relative to deposits this quarter? And does that kind of reverse? Or just talk us through kind of the trajectory of just overall deposit growth from here, especially on the interest-bearing side and what that means for the wholesale funding on the flip?

Bruce Van Saun

Let's start, and I'll quickly turn to Aunoy. But the fourth quarter, Ken, has always been seasonally strong for us always in the commercial space. And so we think commercial will have very significant growth consistent with prior years. We also have -- the private bank, as Brendan mentioned, is growing at a good clip every quarter. That will be additive. And then consumer I think also has a nice seasonality in that. And so we would expect very strong spot deposit growth in Q4. And as I had said on a prior call, by the end of the year, we'll have that FHLB advanced number, I think, meaningfully reduced. And so I think that can come down into a kind of low to mid single-digit billion from 7-ish today. So that's kind of the overall headline is expect strong growth across all 3, quite confident in that. We have good visibility into that, but I'll let Aunoy to provide more color.

Aunoy Banerjee

Yes. I think in your front, we have -- if you go back on the seasonality, you can see that in every last few years, you have seen the drop in seasonality in deposits in the third quarter in the consumer business, and it comes back. Obviously, as Bruce mentioned, commercial comes back very nicely as we have year-end deposit from our clients. The biggest thing I would say is both under all the 3 businesses, we are gathering more operating accounts. They are not really just a rate-driven exercise. So we are getting the actual operating and transactional accounts in our businesses. That actually helps to keep our deposit cost, right? It actually helps to grow our DDA and low-cost deposits. And as you have seen our low cost plus our DDA balances have been at 42%, very steady as we have gone through. And that's what we expect as we go through. And that keeps our deposit costs also in Czech as well.

Operator

Next question comes from Daniel Tamayo with Raymond James.

Daniel Tamayo

Maybe first just on the credit side. it looks like there was an increase in kind of the early stage commercial real estate delinquencies. Wondering if you could touch on that. And then just kind of bigger picture thoughts on the trends of overall credit and if you're expecting the allowance to continue to be able to trend down as it has for the last several quarters.

Aunoy Banerjee

Yes. So let's take that Daniel. So on the overall credit, if you see our credit mix as the allowance is really driven by the mix shift that we have had in our book. So as we roll down CRE that has been coming down nicely. And what we have done is lower loss fund at C&I or residential secured draft. So if you go back to some of our credit pages, you will see underlying that our -- it's just really the mix that is driving the ACL coverage ratio. So there's nothing that is there and that we'll see how the mix evolves as we go through it, but that's how the driver be. .

On the early-stage delinquency on commercial, there are some probably some idiosyncratic issues on some model base, but there's nothing. We don't see any widespread or any broad-based credit issues. I don't know...

Theodore Swimmer

I would say on our real estate book, it's going just as we planned to. We're seeing some significant paydowns quarter-over-quarter as some of these deals mature and get refinanced out. But there's really no change in our real estate book versus where it was last quarter.

Brendan Coughlin

And on the retail side, there's not a lot of new news to share. delinquencies are flat, no signs of stress, NDOs continue to modestly tick down over a longer-term trend line, and there's no signs of anything emerging that would take us off that track.

Bruce Van Saun

Yes. So to your point about like where does this go, I think the -- we've seen a steady decline in charge-off rate as we work through the CRE office look that I'd like to say the pig is almost to the [indiscernible], but there's still a little more to go on that. So that will help drive the net charge-off rate lower than it is now. So we expect that in Q4 and into '27 even though I promised Erika, I'm not giving guidance on '27, but we anticipate that trend to happen. And then the allowance should follow that. There should be an ability for the allowance to continue to dip a bit with the kind of mix shifts that annoy described plus kind of the improvement in overall asset quality as we work through some of the remaining tail of that office book.

Daniel Tamayo

Terrific. And then maybe just shifting to the private bank. I know you've talked a lot about it here, but I guess my question is around the profitability. You talked about 25% plus ROE in that business. Clearly, the lending has been growing faster than the deposit side, but you're coming from a stronger base in the deposit. But how do you think about the -- any kind of shift in profitability over time as that continues to work through? Or do you have to start to match the loan growth to the deposit growth or deposit growth for the loan growth more as you get further along with this -- the growth of the private bank?

Bruce Van Saun

So one of the things that we're doing with the business is running it with a much lower loan-to-deposit ratio than kind of the way when it was set up First Republic. This is kind of more disciplined around credit and making sure it's the deep relationships. And that we've changed that the product we're selling more is white glove service as opposed to we're offering discounted credit. And so that, I think, has helped set the stage for a much higher kind of ROE business and what First Republic achieved overall in their ROE there is kind of catch-up growth now. So we brought over deposits initially, let's bring our D&I and then eventually some of the lending will pick up, and we've seen it pick up.

And so when you're using more capital, that can has the potential to lower the ROEs a little bit. And then also, we're making a lot of investments that follow J-curve. So when we're hiring all these people and bringing these teams in the outset, that's harmful to the return level. But then as the revenues come in, that creates the kind of overall positive dynamic in terms of those returns. And so just being kind of very measured in terms of looking at -- we don't want to have too many J-curve going because that can depress our profitability, but we're going to stage them very thoughtfully and prioritize things. While I think that's been the secret as to how we've been able to get off to a high start and then sustain those levels. But at this point, we don't see anything that would take us out of a 20% to 25% zone. But so it's possible that it drips down a little bit with kind of more -- a bigger lending book and a continued build-out, particularly markets like Florida and the Northeast, where we still have more building to do. But in any case, I think the discipline that we've had to run it with positive operating leverage; b, make tough choices, set the right priorities, states so that we keep the returns high that's been on full display. Brendan?

Brendan Coughlin

Only 2 points I would make is, in addition to Bruce's is that we expect through the medium term for the business to still be self-funding. And so while LDR is tightening a little bit, the business is still self-funding itself both from an LDR standpoint and an LCR standpoint. When we look at lendability of deposits. So to Bruce's point, perhaps the ROEs would tighten a tiny bit. It was a little maybe when we were outside the 25% range in the '26 and '27, and maybe it was a little artificially high, but there's even with that tightening dynamic, there's nothing we see that will take us out of that range of 20% to 25%.

The other point number 2 that I would make is as the wealth business catches up to scale, that is a low capital-intense business. And we -- when we built a private bank. We started with a heavier set of bankers, and now we're starting to see the wealth managers come on the platform. And that should only accelerate in the future as we put greater focus on building out the wealth business and catching up to the growth that we've had on the banking side. tightening you see on the balance sheet should get offset. Now we'll have some efficiency ratio tightening, right? Because the wealth business is going to be a 75% to 80% efficiency ratio business, but very capital light and will drive ROTCE accretion for the segment and for the company overall. -- good point.

Operator

Next question comes from the line of Gerard Cassidy with RBC Capital Markets.

Unknown Analyst

Just following up on the private banks. Obviously, you guys are having really good growth you're bringing out the recurring to around 45% on capital. The question I have for you is that as you broaden serial franchise, do you think most of your are identified net interest income was really the driver of the revenue and earnings sorter you envision even more national, more fee or into businesses will contribute to the revenue mix.

Brendan Coughlin

Yes. Thanks, Gerard. It's Brendan. We expect wealth to grow in an outsized way. And that will be the primary driver of fee income coming through the private bank, as you would expect. We've got maybe a high-class problem to have here where the balance sheet and the attractiveness of the banking side of the business has been so attractive to these clients that we've grown that so fast. So you're seeing even though we're driving fee income up at a pretty healthy clip, it's been, from a mix standpoint, consumed by very, very strong balance sheet growth. So we're not going to be overly focused on managing to mix of revenue if it's a good business, we're going to do it.

But I do think over the medium to long term, you should expect the wealth business to play an even bigger role in there, and we should see the fee proportion start to improve modestly over time, which kind of back to the last question, has a positive improvement to ROTCE that will offset some of the tightening LDR dynamics. So I do expect it to improve, but the strength of the banking business is so strong over the next 12 to 24 months, I wouldn't expect radical improvements, but you should see steady growth in fee income in line or better than the banking balance sheet over time. So we're very focused on the wealth piece of that business. And there's a natural progression to here when you have a bank owned private bank that you typically earn the client's relationship first on the banking and credit side and then through earning that trust and starting to do financial planning, the wealth comes as a fast follower. And so that is a natural progression of client behavior and also our hiring practices as we built the wealth business. So it's a heavy focus, and we project to see steady progress there.

Bruce Van Saun

Wealth has a broader halo effect across the franchise. So we are also seeing that in our consumer business as well as through our retail network as well.

Unknown Analyst

Very good. And then just as a follow-up to some of the commercial loan questions earlier in the call. Obviously, you guys are pointing out that financial real estate came down planned reductions there. But on the C&I side, you mentioned that demand is still there. Can you share with us, are you seeing more competition there, whether just adjusted returns may not meet your hurdles? Or what are you seeing inside the CMI portfolio where there was some softness in this quarter in terms of growth?

Theodore Swimmer

So to Bruce's point earlier, there's always stiff competition whenever we do a transaction. We are continuing to focus on being the left lead, the primacy of the account and where we can't get that business, we tend to shy away. In the third quarter in our corporate credit business, we moved out of $400 million of assets because we just couldn't make a good return and we're not building loans just for asset for a loan growth perspective. We're seeing plenty of opportunities now with what we developed throughout our entire commercial bank to have opportunities to not win on price but to run on advisory work and went on providing good, strong advice to our company. So competition is stiff, it will remain stiff, but I don't think it's going to have a material impact on what we're doing.

Aunoy Banerjee

And Gerard, I would say spreads over the last couple of quarters have stabilized.

Operator

Yes, we do have more question that is from Matthew Breese with Stephens Inc.

Matthew Breese

I was hoping you could talk a little bit about how higher rates have impacted or yet to impact kind of prepay and payoff activity in the commercial real estate space. I would assume that it slows down, but I'm curious if expectations have met reality at this point.

Theodore Swimmer

To this point, it has not -- we've done an analysis of our real estate book of where we think the higher rates can impact us. I think long story short, we think somewhere in the neighborhood of $400 million after all the analysis we did maybe, but that's about as much as we see potentially being delayed because of higher rates at this point. we don't think it's going to have a material impact otherwise.

Matthew Breese

Okay. And then no one for you. Do you have handy what the period end cost of deposits were? And just curious what your expectations are for deposit cost increases over the next couple of quarters with one more Fed hike in your assumptions.

Aunoy Banerjee

Yes. So as I said, like if you think of it, deposit costs with one more rate hike probably more in towards in the December range, if you think of the Fed rate hike. Some of the rate hikes will when you -- it depends on which part of the book of deposits get repriced. Commercial gets repriced almost immediately. It's contractual. So on the private bank as well as consumer gets over time. So there's a little bit of lag. We see. Now what happened is you also saw the rate hike in the third quarter happened in September. So that will catch up. You'll also see loans catching up. Most of our loan book is floating rate. The loans will catch up as well as we go through loans are generally on a lag. So all these things start to layer in so. So I think it's hard to pinpoint on period end. I would say like that.

Bruce Van Saun

I think we go back to the earlier answer where on the retracement up, if there's 3 hikes that was kind of a 49 -- kind of high 40s beta first on the way down on the way up and then on the way down. And so in that ballpark is something that we would manage to, I think, over the next, however, many hikes there are. But I did at a conference in September, I mentioned the timing of the hike would start to move deposit costs higher, but commercial loans would, as a noise said, reprice right away. But then some of the consumer loan categories are tied to rates and don't move until the fourth quarter. So given that we're asset sensitive, notwithstanding the fact that your deposit costs are going to go up, your loans aren't going to go up more, and I called that out at probably a 1 basis point tailwind to Q4, which I think is still kind of in the ballpark. So a lot will depend exactly kind of when the hikes happen, but being asset sensitive, we'll see that benefit from the upcoming moves.

All right. Thanks for dialing in today and asking some great questions. We appreciate your interest and support. Have a good day, everybody.

Operator

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