Citizens Financial Group (CFG) Q4 2021 Earnings Call Transcript

Citizens Financial Group (CFG -1.79%)
Q4 2021 Earnings Call
Jan 19, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the Citizens Financial Group fourth quarter and full year 2021 earnings conference call. My name is Alan, and I'll be your operator today. [Operator instructions] Now, I'll turn the call over to Kristin Silberberg, executive vice president, investor relations. Kristin, you may begin.

Kristin Silberberg -- Vice President of Investor Relations

Thank you, Alan. Good morning, everyone, and thank you for joining us. First, this morning, our chairman and CEO, Bruce Van Saun; and CFO, John Woods, will provide an overview of our fourth quarter results. Brendan Coughlin, head of consumer banking; and Don McCree, head of commercial banking, are also here and will discuss some of the exciting strategic initiatives that we have underway.

We will be referencing our fourth quarter and full year earnings presentation 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 view on Page 2 of the presentation.

We also reference non-GAAP financial measures, so it's important to review our GAAP results on Page 3 of the presentation and the reconciliations in the appendix. With that, I'll hand over to you, Bruce.

Bruce Van Saun -- Chairman and Chief Executive Officer

Thanks, Kristin. Good morning, everyone, and thanks for joining our call. We are pleased with the financial performance we delivered for the fourth quarter and the full year. And we feel well-positioned to continue our own momentum through 2022.

The investments that we've made to transform and reposition Citizens since our IPO are really bearing fruit. Our customer-centric approach, backed by a full range of product offerings and strong digital data and technology capabilities, has allowed us to gain market share, deepen relationships with customers, and develop sustainable growth opportunities. We've navigated the pandemic environment well, shifting to offense over the course of 2021 to accelerate our strategy, including five acquisitions, as we strive to build a unique and special top-performing bank. I'll comment briefly on a few of the financial headlines and let John take you through the details.

For the quarter, our underlying earnings per share was $1.26, and our return on tangible common equity was 14.6%. Sequential operating leverage was 1.5%. That's 1.8% ex-acquisitions. And sequential growth in PPNR was a strong 6%.

Beating our performance was an unbelievably strong quarter in our capital markets business, led by M&A and loan syndications. We felt a great business through hiring top talent in combination with several acquisitions, and our approach to market is really clicking. For the quarter, we were No. 1 in the league table for middle-market-sponsored transactions and No.

4 for overall middle market. We only had JMP results for six weeks of the quarter, but we're very excited about how they'll augment what we've already assembled. Our highlights for the quarter include strong sequential loan growth of 4% on a spot basis, 5% ex-PPP, while average growth was 2%. And that's 3% ex-PPP.

Commercial growth and a pickup in line utilization were bright spots. And we entered 2022 with a good jump-off point. We did a nice job on expenses, pulling across our top efficiency saves to help offset higher incentive comp tied to revenues. And credit remains pristine as good as it gets.

Our capital position remained strong with CET1 ratio of 9.9%, giving us a great deal of capital management flexibility in 2022. We have the capital and liquidity to fund the attractive loan growth we expect to see in 2022 while looking for selective acquisitions and ensuring strong returns of capital to shareholders. With respect to our guidance for 2022, we assume solid economic growth of around 4%, several Fed rate hikes, and improvement in loan demand. Our TOP 6 and TOP 7 programs should allow us to keep expense growth ex-acquisitions below 3%.

And we're targeting 2% positive operating leverage, including the bank yield scheduled to close soon, and almost 5% ex-PPP impact. Credit is expected to continue to be highly favorable. And I'd expect our return on tangible common equity to move over 14% in the second half of the year, potentially reaching 15% in Q4. So, all in all, a very strong year of execution and delivery for all stakeholders by Citizens in 2021.

And we feel we are well-positioned to do well in 2022 and continue our journey toward becoming a top-performing bank. I'd like to end my remarks by thanking our colleagues for rising to the occasion and delivering a great effort in 2021. We know we can count on you again in the new year. So, with that, I'll turn it over to John.

John Woods -- Chief Financial Officer

Thanks, Bruce, and good morning, everyone. First, I'll start with the headlines for the quarter. We reported underlying net income of $569 million and EPS of $1.26. Our underlying ROTCE for the quarter was 14.6%, which included the impact of a credit provision benefit.

Revenue of 1.7 billion was up 4% linked quarter, given strong growth in fee income. Average loans are up a solid 3% in the quarter before the impact of PPP forgiveness, led by retail, which is up by 4% and 3% growth in commercial. Overall spot loan growth of 5% for the quarter, excluding PPP, provides good underlying momentum for loan growth this year. Linked quarter fee growth was 15% or 10% before acquisitions, including outstanding results in capital markets, driven by record M&A fees and loan syndications, as we've executed well and gained market share.

And excluding the impact of the two commercial fee-based acquisitions we closed in the second half, we delivered underlying positive sequential operating leverage of approximately 2% this quarter with well-controlled expenses. We recorded a credit provision benefit of 25 million, which reflects strong credit performance and the improving economy. Our year-end ACL ratio stands at 1.51%, above our day one CECL level of 1.47%. We continue to have a very strong capital position with CET1 at 9.9% after returning $350 million to shareholders in dividends and share repurchases during the quarter.

Next, I'll provide some key takeaways for the fourth quarter while referring to the presentation slides. Net interest income on Slide 6 is down 2% given lower net interest margin, partially offset by strong loan growth. The net interest margin was 2.66%, down 6 basis points, reflecting a reduced benefit from PPP forgiveness and lower-earning asset yields, given changes in loan mix and spread compression, partially offset by the impact of lower cash balances as we redeploy some of our excess liquidity into loan growth. We also made continued progress lowering our interest-bearing deposit costs, which are down 1 basis point to 13 basis points.

On the bottom left side of the page, you can see we remained highly asset-sensitive at the end of the quarter, with an overall sensitivity of 10.1% to a gradual 200 basis-point rise in rates. At the end of the year, about 60% of our sensitivity is geared toward the short end, so we are well-positioned to benefit when the Fed begins to tighten. Referring to Slide 7, we delivered terrific fee results this quarter, demonstrating the strength and diversity of our businesses with outstanding results in capital markets, reflecting our long-term investments in the business and solid performance across other fee categories. We set a new record for quarterly capital markets with exceptional strength in M&A advisory and loan syndication fees amid a backdrop of good market activity.

We continue to gain market share and have nice momentum as we enter 2022. We also delivered our best quarterly results of the year in FX and IRP, which are up 21% linked quarter, given an increase in currency transactions driven by robust M&A activity and an increase in client hedging given the outlook for rate rises. Mortgage fees declined in the quarter against a backdrop of strong competition and excess industry capacity. We saw ongoing pressure on gain-on-sale margins, particularly in third-party channels and seasonally lower production volume.

Mortgage servicing income improved as our third-party servicing book grew 3% linked quarter to 90 billion. Card fees were stable as debit transactions in credit card spend continue to exceed pre-pandemic levels. Wealth fees also remained strong. Service charges and fees were modestly lower, reflecting the impact of Citizens Peace of Mind, our new customer-friendly deposit account feature.

We are seeing these changes drive clear benefits and customer experience as customer satisfaction is up and call center volume is down since we implemented the changes. On Slide 8, expenses were well-controlled. Excluding the impact of the fee-based acquisitions that closed in the second half of the year, non interest expense was stable. And we drove the linked quarter operating leverage of about 2%.

These results reflect higher incentive compensation tied to strong capital markets revenue and strategic investments, which was balanced by strong expense discipline and the benefit of top efficiency initiatives. Period-end loans on Slide 9 were up 4% linked quarter or 5% excluding PPP. We were pleased to see strong commercial loan growth, up more than 6% excluding PPP. Retail loans are also growing, up 4%.

Average loans were up 2% and up more than 3% excluding PPP. Retail strength was driven by mortgage and auto. Commercial originations were very strong, exceeding pre-pandemic levels, led by corporate banking, subscription line financing, supporting deal-related activity, and asset-backed lending. After line utilization levels ticked up last quarter, we saw a larger increase of about 270 basis points to 35% on a spot basis this quarter, primarily driven by deal-related financing activity.

We continue to expect a gradual recovery and utilization over the coming quarters as some of the issues holding back investment, such as supply chain challenges and labor shortages revolved. In addition, our period-end commitments are up a very strong 8%, which will benefit us as investment continues to pick up. On Slide 10, deposit flows continue to be robust, especially in low-cost categories. And our liquidity ratios remained strong.

Average deposits were up 1% linked quarter and 5% year over year with strong growth in demand deposits, which now make up 32% of total deposits, up from 30% last year. Interest-bearing deposits were broadly stable as the continued run-off of higher cost term deposits was offset by growth in demand deposits in lower-cost categories. We continue to make good progress on deposit repricing with interest-bearing deposit costs down 1 basis point to 13 basis points during the quarter. Given the changing tone of the Fed and the potential that they may begin to tighten early this year, we thought it would be helpful to make a few points about how we see our deposit costs behaving in the next rate cycle.

First, we have made significant improvements to our deposit-related capabilities since the IPO. Our enhanced data analytics capabilities allow us to optimize the deposit base by attracting more stable deposits with targeted offers and by employing more dynamic pricing. We also have the added lever of Citizens Access, which has proven to be a very efficient deposit channel. And we have strengthened our commercial offerings and invested in enhanced tools to drive higher operating deposits.

Secondly, our mix of lower-cost deposits is much better with demand deposits now 32% of the book, compared to 27% at the beginning of the last rate cycle. And consumer CDs, which were at 14% of total deposits at the end of the last cycle, are now down to 3%, which is below peer levels. Also, note that the HSBC branch acquisition will add almost 8 billion or 5% to our core deposits when we close this quarter. Lastly, we have vastly improved our overall liquidity profile with a lower LDR and much lower deposit costs than when we entered the last cycle.

When you add that all up, we are confident that our deposit base will be meaningfully lower than the prior cycle. Moving on to credit on Slide 11, we saw excellent credit results again this quarter. Net charge-offs were broadly stable at 14 basis points for the fourth quarter with good performance across the portfolio. Nonperforming loans decreased 6% linked quarter with continued improvement in commercial.

Other credit metrics continue to improve as criticized loans were lower and internal ratings upgrades exceeded downgrades. Moving to Slide 12, we maintained excellent balance sheet strength. Our CET1 ratio remained strong at 9.9% at the end of the fourth quarter after returning $360 million in capital to shareholders through dividends and share repurchases, and closing the JMP acquisition. On the bottom right of the page, we expect a 22-basis-point impact at CET1 from the pending HSBC acquisition.

And the ISBC transaction will be effectively neutral, given the stock to be issued in the deal. Shifting gears toward business strategy a bit, we thought it would be useful to have Brendan and Don discuss some of the exciting strategic initiatives that we have underway and how we are poised for strong and sustainable growth. Brendan, over to you.

Brendan Coughlin -- Head of Consumer Banking

Thanks, John. Good morning, everybody. On Slide 13, you can see, we've dramatically transformed the consumer bank since the IPO and have a strong foundation to propel us into the future. Let me share a few highlights.

We're acquiring customers at a pace that far exceeds the pace of household formation in the U.S., nearly doubling our customer base from approximately 3 million at the time of our IPO to 6.4 million today. Further, our mobile engagement is up 15% year over year, closing gaps to peers and allowing to thin our physical network by another 8% this year, about 20% since our IPO. This enables us to reinvest in growth strategies. We've built one of the most diversified consumer lending businesses in the U.S., giving us a number of additional leverage for revenue growth and customer deepening that many of our peer banks lack.

We've transformed our deposit book, repositioning our deposit mix quite significantly with strong DDA growth, which has really driven down our cost of funds by about 75% compared with the time of our IPO. Finally, while we have more work to do, our wealth business has been repositioned for growth. And our AUM is more than three times the size at the time of the IPO. So, five years ago, we were very much a traditional regional-only bank.

We have strong momentum in the business, have broadly caught up with peers, and in a number of places, have built best-in-market capabilities that have led to differentiated growth rates. Moving on to Slide 14 and looking forward, we've prioritized several strategic initiatives that should help us deliver above-trend revenue growth, adding about 1 billion by the year five. First, we expect to leverage our acquisitions in the New York metro market to grow share and deepen relationships. We will pick up almost 1 million new customers who have been underserved, given that their current banks don't have the breadth of product capabilities that we have.

There is strong upside if we can replicate in New York what we had done in our core markets, like Philadelphia and Boston. The second area is wealth, where we have a great opportunity as well. We recently attracted a new and strong leadership team with a long track record of industry success. Our regional footprint at our bank customer base is highly attractive and provides significant opportunity for sustained growth.

Third, our Citizens Pay offering is unique among all the industry players in the fast-growing buy now, pay later space. We were early movers in this space, starting with the Apple partnership in 2015. We've built a very strong position, now with 44 partners. We've added industry verticals and have remained focused on getting marquee partners, providing good momentum and with a strong pipeline for 2022.

Lastly, our national push will be led by our digital capabilities, and that includes our efforts to build on the Citizens Access launch in 2018 and the integration of our full range of products and services on a modern cloud-based platform. We'll continue to add products to the platform in '22 and will aim to drive improved customer deepening. We will also leverage the strategy to accelerate our technology transformation of our core bank as we ultimately aim to converge the operating platforms into one national digital-first structure. Now, let me pass it over to Don.

Don McCree -- Head of Commercial Banking

OK. Good stuff, Brendan. And let me shift to our commercial priorities, which are on Slide 15. We've added some great talent to the commercial bank on both the coverage side, as well as the product side.

And we're able to do more for our customers over their life cycle than ever before. We've been near the top of the middle market league tables, helping corporate clients and private equity sponsors access capital through private and public debt and equity markets. And we've integrated our cash management with global market solutions well with our coverage teams. On the coverage side, we've been expanding geographically and moving upmarket into the mid corporate space, where it is critical to deliver deep industry expertise.

Our JMP acquisition, which closed late last year, gives us a much broader and deeper corporate finance coverage in technology, healthcare, and financial services. Plus, we gain an equities business that is very well run, focused and highly regarded. And we're already seeing great cross-sell dividends off of it. As non bank lenders continue to take lending-to-market share from banks and private equity ownership of companies continue to increase, we've broadened our capabilities to better compete successfully in the new landscape.

We will increase -- we will increasingly generate more fee revenue across our customer base, given these expanded capabilities. It's also worth noting that Willamette, the transaction we closed mid last year, dramatically expands our valuation services business with a very prestigious outfit. This capability is highly synergistic with our M&A and broader capital markets effort and has annuity-like qualities. So, you can see the success we've had in building and scaling up our businesses to deliver more than just traditional banking products to our clients.

We are highly confident that this list will continue to drive sustainable and growing revenue streams. Over to you, John.

John Woods -- Chief Financial Officer

Thanks, Don. On Slide 16, you'll see some examples of the tremendous progress we've made against the key strategic initiatives that Brendan and Don mentioned and other work we are doing across the bank to better serve our customers and make Citizens a great place to work. We are very excited to see how our digital-first approach is increasing engagement with our customers and how this is all translating into a better experience and higher satisfaction. Moving to Slide 17, I'll touch on our top programs.

Even as we intended to offense with our strategic initiatives and acquisitions, it is important to remember that a key to Citizens' success since out IPO has been our continuous effort to realize efficiencies and reinvest these savings back into our businesses so we can serve customers better. We've effectively wrapped up our TOP 6 program after achieving our targeted pre-tax run-rate benefits of approximately $425 million at the end of 2021. Now, we have launched TOP 7 with the goal of an exit run rate of about $100 million of pre-tax benefits by the end of 2022. We are really doubling back to mine areas where we have already been successful.

For example, continuing our multi-year journey of digital transformation across consumer and commercial, looking at further organizational streamlining, accelerating and building on our next-gen tech initiatives, and doing more in the cloud. We're going to focus on ensuring our agile operating model and take another look at our vendor spend as well. Based on the work we've done so far, we feel confident that we can deliver on this new program. Moving to Slide 18, we've made a lot of progress on the ESG front last year, and we will continue to make meaningful progress in 2022.

A few highlights were the launch of a new green deposits program to allow corporate clients to direct their cash reserves toward companies and projects that are expected to create a positive environmental impact. We adopted targets to meaningfully reduce our Scope 1 and Scope 2 greenhouse gas emissions. We have a strong commitment to social equity. And our colleagues continue a tradition of being highly focused on volunteering in our communities.

To serve our clients better, we introduced new deposit account features that help customers avoid unexpected overdraft fees. And we immediately saw changes that indicate a meaningful improvement in customer experience. This should help attract and keep more customers with the bank. And now, for some high-level commentary on the outlook for full year 2022 on Slide 19.

First, let me be clear that this is a stand-alone outlook that includes JMP and Willamette, which closed late last year, but does not include any benefit from our pending acquisitions of HSBC and Investors. The bottom-left corner of the page includes information that should help if you were trying to also layer in the expected contribution from these acquisitions in 2022. For 2022, we expect NII to be up 3% to 5%, driven primarily by mid-single-digit average loan growth. Excluding PPP, we expect NII to grow high single digits, driven by high-single-digit average loan growth.

Average interest earning assets are expected to be up slightly as excess liquidity is deployed into loan growth. The rate scenario used in our outlook is based on the forward curve as of January 5th and includes three implied Fed rate hikes of 25 basis points each in April, July, and December. On the long end, we are planning for the 10-year treasury to be about 1.9% by the end of the year. The rate per benefit on net interest margin will allow us to more than offset the 2022 impacts from lower PPP forgiveness and swap revenue while presenting meaningful upside to NIM in 2023 and beyond.

Fee income is expected to be up 4% to 7%, given continued strength in capital markets and wealth following record performances in 2021. Noninterest expense is expected to be up 5% to 6%, given the full-year effect of our commercial fee-based acquisitions, or up less than 3% excluding the impact of these acquisitions. We have included an expense walk on Slide 24 that lays out the drivers. Credit is expected to remain excellent, with net charge-offs broadly stable to down slightly and provision expenses less than net charge-offs.

And we plan to continue operating with a CET1 ratio within our target range of 9.75% to 10%, which incorporates an anticipated increase in our dividend in the second half of the year. On the lower left of the slide, you'll see our expectations for the pro forma impact of HSBC and Investors with ETF accretion of about 5% based on consensus at the time of announcement and approximately 475 million in additional PPNR to our 2022 results. Importantly, we expect to deliver positive operating leverage of approximately 2% on an underlying basis for the year, including HSBC and Investors. And if you set aside the impact of PPP, that would be a very strong 5% uprate.

Moving to Slide 20, I'll cover the outlook for the first quarter. We expect NII to be down about 1% despite solid loan growth, given a 20 million smaller contribution from PPP and an $18 million impact from lower day count. Including the impact from HSBC, NII will be broadly stable for the quarter. Average loans are expected to be up 2% to 3% with interest-earning assets broadly stable.

Fees are expected to be down 8% to 12%, reflecting seasonally lower capital market fees than the record we delivered last quarter, as well as other seasonal impacts. Noninterest expense is expected to be up approximately 6% given seasonal compensation impacts and the full-quarter impact of the JMP acquisition. Net charge-offs are expected to be broadly stable with provision less than net charge-offs. And we expect our CET1 ratio to land at around 9.75%, including an impact of about 22 basis points from the HSBC transaction, which we expect to close mid-quarter.

To sum up with Slide 21, we feel that we finished 2021 with a great quarter and enter 2022 with strong momentum. We have a winning strategy. We are building capabilities organically and through acquisitions that deliver value to our customers and growth for our shareholders. Our strong leadership team will continue to focus on execution in building a top-performing bank.

With that, I'll hand it back over to Bruce.

Bruce Van Saun -- Chairman and Chief Executive Officer

OK. Thank you, John. Operator, let's open it up for some Q&A.

Questions & Answers:

Operator

Thank you, Mr. Van Saun. We are now ready for the question-and-answer portion of the call. [Operator instructions] Your first question will come from the line of Peter Winter with Wedbush Securities.

Your line is open now.

Peter Winter -- Wedbush Securities -- Analyst

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Good morning.

Peter Winter -- Wedbush Securities -- Analyst

I had a question. One thing I hear, I get from Investors is the potential for deal risk noise just between the HSBC and Investors Bancorp and then also in the Investors loan mix being heavy in commercial real estate. So, the question is, is there a need to remix the loan portfolio at Investors and lead to some near-term revenue headwinds and just potential volatility closing both deals in the first half of the year?

Bruce Van Saun -- Chairman and Chief Executive Officer

Let me start, and, John, you can jump in. So, it's Bruce, Peter, You know, I think we're working really well and hard to make sure that these deals come off very smoothly, customers have a good experience, and we can introduce our approach to banking right off the bat and take advantage of, I think, some really great synergy opportunities. So, we've set up a separate integration office. We've had outside help helping us through and put dedicated teams to make sure that we get off to a good start.

So, I don't really see any disruption from smoothness of operations. I think that will come off very, very well. You know, we're monitoring the performance of both businesses, and they seem to be performing to our expectations. So, that's also a good fact.

You know, we will end up taking on more commercial real estate exposure when Investors closes. However, most of that is in multifamily. And the kind of risk of that portfolio is relatively modest in terms on the spectrum of commercial real estate risk. So, I think we'll look to grow our other loan categories faster over time, which will bring kind of that exposure back into more alignment of where our targeted balance sheet would be.

But we don't think there'll be any need to do any dramatic surgery or anything that would disrupt the momentum that we have in loan growth. So, I'll stop there. And, John, if you want to add anything to that.

John Woods -- Chief Financial Officer

Yeah, I think that's well said. I would just add that as it relates to the operational side of things, we've got a number of mock conversions and dress rehearsals that have gone extremely well. The last one is, I think, next weekend. So, we're right on schedule for HSBC for that closing conversion, you know, in middle of February.

So, that's really sort of well-handled. And we're deep into the planning on Investors as well, planning for legal day one, planning for customer day one, planning for conversion. And those plans are also well in sight and appear well -- able to be executed. On the balance sheet aspects that Bruce mentioned, just reemphasizing, our front book originations will look different than the backlog.

The backlog, you know, has the multifamily loan portfolio, as Bruce indicated. But that front book is going to have a lot more C&I and a lot more consumer lending, you know, going forward than Investors has had in the past. So, with that, I'll go ahead and leave it there.

Bruce Van Saun -- Chairman and Chief Executive Officer

OK.

Peter Winter -- Wedbush Securities -- Analyst

Right. Thanks. Very helpful. And then if I could just ask, John, I'm wondering, could you quantify the impact to net interest income for every 25-basis-point rate hike and what you're assuming for the deposit betas?

John Woods -- Chief Financial Officer

Yeah, I'll go ahead and talk about that. I mean, I think we are highly asset-sensitive. And that's built into the guide for NII for 2022 based on the Jan 5 curve. And as you know, since then, the curve has increased a fair bit as of -- just looking at it where things ended up yesterday.

So, there's more upside in 2022 if the rate environment continues to unfold as we're seeing it in the last several days. But as it relates to the actual sensitivity, the way that shakes out is that on the short -- we're mostly sensitive to the short end. And that'll drive about $20 million if there's an extra 25 basis points on top of the forward curves as of January 5th. We'll generate another 20 million per quarter on that on the short end, and we'll get another 10 to 15 per quarter on the long end versus the January 5th forward curve for an overall 30 million to 35 million per quarter of additional benefit if you have 25 basis points across the --

Peter Winter -- Wedbush Securities -- Analyst

The parallel shift.

John Woods -- Chief Financial Officer

Yeah, on a parallel shift, up from the Jan 5 curve. As it relates to deposit betas. I mean, this is a very exciting story. I mean, we've completely transformed the deposit franchise since the IPO.

And I would say that, as I mentioned in my remarks, I think that our deposit betas are going to be meaningfully lower in this next cycle. And, you know, of course, you know, we should start off the cycle as, oh, there's a lag. And we've got that lag built in, but we also have some betas built in. But I would say that the 2022 betas, you know, at the beginning of this cycle, are going to be much lower than the betas that we experienced at the beginning of the rate rise cycle last time around, given all the investments we've made in product capability, in pricing, and approach, and with the added lever of Citizens Access.

So, we're really excited about being able to demonstrate the strength of the deposit franchise in this cycle going forward.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yeah. I just had to quantify that a little bit. If you look at the last move, up 2% on Fed funds and then you compare the -- if that happened today, we'd probably be a third less in terms of our deposit betas than we were last time around.

John Woods -- Chief Financial Officer

Exactly.

Peter Winter -- Wedbush Securities -- Analyst

OK. Thanks very much.

Bruce Van Saun -- Chairman and Chief Executive Officer

OK.

Operator

Your next question will come from Ken Usdin with Jefferies. Go ahead, please.

Ken Usdin -- Jefferies -- Analyst

Thanks. Good morning, guys. Thank you for the detail on the merger updates and the timelines. I'm just wondering, can you just give us a sense of at what point do you expect to get both converted? And do you have an understanding of when you think you'll get to kind of, you know, full run rate cost saves from the combination of HSBC and ISBC?

John Woods -- Chief Financial Officer

Yeah, I'll go ahead and start. As it relates to -- we're targeting toward the end of '23, when we'll have substantially all the synergies done. And as I mentioned, we're going to close and convert HSBC here in February. The expectation is our target is to close Investors in early first quarter, early April.

And I would say the way to think about conversion is that that's not going to be a big-bang approach. We're going to see that conversions happen throughout on a staged and phased basis throughout 2022. Assuming we close in early April, we'll see a couple of platforms close throughout 2022 and into the end of 2022. And there could be some stragglers into the early part of 2023.

But again, it's not going to be a big bang. We're going to move certain platforms over as they become ready to go. And I think, for -- as an example, mortgage and wealth are two platforms that will go early. And the overall core will happen later.

So, maybe I'll just maybe turn it over to others if they want to add any color to that.

Bruce Van Saun -- Chairman and Chief Executive Officer

I think that's right, John.

Ken Usdin -- Jefferies -- Analyst

OK, great. And my second question is just, I know you've said very clearly that you wouldn't expect to update, you know, capital targets and such until you reach your medium-term goals. I'm just wondering, so should we think -- how should we be thinking about share repurchase in terms of, you know, getting through closings? And any anticipation that you have about anticipating this year's CCAR process with you getting back into it in '22?

John Woods -- Chief Financial Officer

Maybe I'll just start off. And as you may know, I mean, we've talked about this before. Our capital priorities start off with the dividend and supporting organic growth and fee-based bolt-ons. And so, we want to put capital to work in that manner.

And to the extent that those opportunities, you know, we leave some capital around. Then, we engage in buybacks, which we did this quarter -- or this past quarter, 4Q, as we articulated in our remarks. So, I mean, I think we're coming into CCAR season. And we tend to, on an annual basis, take another look at capital targets and what the trajectory of capital return will be.

We also have the deals that are pending. So, I think you'll get -- we can be a little bit more -- you know, sort of give another update on that as you get into the first quarter call.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yup. And, Ken, just from a technical standpoint, we had an authorization to buy back 750 million of our stock. And we've used about 300 of that to date. So, we have 450 left for this year, which should give us plenty of running room.

When we get through CCAR, you might see us do an adjustment to that. But anyway, that's a little bit of the framework that we're operating under.

Ken Usdin -- Jefferies -- Analyst

Got it. OK. Thanks, guys.

Bruce Van Saun -- Chairman and Chief Executive Officer

Yup.

Operator

Your next question will come from John Pancari with Evercore ISI. Your line is now open.

John Pancari -- Evercore ISI -- Analyst

Morning.

John Woods -- Chief Financial Officer

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hi.

John Pancari -- Evercore ISI -- Analyst

Just on the loan trends, clearly, you know, the commercial trends came in very solid and better than expected. I just want to see if you can give us a little more granularity on where you're really seeing that strength and the drivers. I know you mentioned deal financing. Are you seeing capex plans start to drive some drawdowns there? And then, separately, just in terms of the end-of-period loan balance, it looks like there are a few billion above the average balances.

And so, therefore, the end-of-period balance is a good leading indicator into outlook as we model this out.

John Woods -- Chief Financial Officer

Maybe I'll just start off, and Don can weigh in here. I mean, I think as we mentioned, corporate banking and subscription line finance and asset-backed lending all contributed. And it has been an excellent quarter. And there is momentum with spot balances higher than average.

So, that's right, John. I would say, when you split it out, we are seeing -- last quarter, we saw a tick-up in utilization from our sort of bread-and-butter corporate banking clients. This quarter, we saw another tick-up, you know, in that sense. A lot of the increase was driven by deal financing, but we are seeing some underlying tick-up, maybe 50 basis points, you know, last quarter, another 50 or so this quarter.

Maybe I'll just turn it over to Don to add any additional color.

Don McCree -- Head of Commercial Banking

No, I think that's right. I think the big macro is our origination volumes are just huge record quarter on quarter on quarter. And they've been offset by payoffs as people go into the capital markets or -- and in particular, real estate. A lot of properties are trading.

So, we're being taken out of loans due to underlying property sales. But we're really encouraged by what we're seeing on the origination side. The subscription line business that we have is really going quite well. It's growing quite quickly.

Some of the deal financing that happened in the fourth quarter will be refinanced out in the capital markets, probably, which is good for us. We'll participate in that. But we think, you know, the trend continues. The other thing that we are seeing is a lot of activity in our real estate business on the origination side.

We're seeing, you know, quite a bit of warehousing, quite a bit of industrial, quite a bit of life sciences, and then increasingly build-to-suit office, believe it or not, so, you know, investment grade corporates building new office space to occupy post-pandemic. In terms of working capital and capex and things like that, it's really hard to kind of discern how quickly that's going to happen. You've got, you know, the new supply chain challenges. You've got some of the labor challenges.

You've got some of the, you know, international countries shutting down. So, it's kind of fits and starts. But we think it's -- it feels pretty good to us overall.

John Pancari -- Evercore ISI -- Analyst

OK. Great. Thanks. And then, Bruce, you know, just a question from higher level.

I know you certainly have been acquisitive here in adding to your business, both on the banking side, as well as cap markets. Could you just talk about, from the banking perspective, the need for scale? And the whole debate that do you need scale to be able to compete effectively? And more specifically, do you think ultimately you need a national franchise?

Bruce Van Saun -- Chairman and Chief Executive Officer

Thanks. Sure. So, I like our size, John. So, I think we have enough scale that we can compete against all comers.

We have to be extremely disciplined. We have to prioritize well. We have to leverage external parties, our principal core application vendors. We have a lot of partnerships with fintechs.

But we do a really good job there. And we're moving the company to be a digital-first bank. And I like the progress there. So, one of the advantages you have if you're not super big, you're not in the mega bank weight class is that you can be more nimble and you can move faster and you can stay focused on the things that really matter.

So, you know, scale does help to some degree. So, doing this New York metro play and picking up another 30 billion of assets, I think, is a positive. But we don't feel compelled to have to run out and do more deals to stay competitive. Was there a second part of your question, John?

John Pancari -- Evercore ISI -- Analyst

Well, it was just -- do you believe you need a national presence including some brick-and-mortar?

Bruce Van Saun -- Chairman and Chief Executive Officer

Oh, no that -- yeah, right. Yeah, so, there, I think we have a pretty unique opportunity because we have a deposit franchise that's national with Citizens Access. We do have consumer lending activities that are national. And we've basically gone to market in a kind of a product-siloed fashion without a fully comprehensive platform that allows us to deliver a full range of products and services to customers.

So, that's been really our focus. And they've put it under the umbrella of national expansion. We think there's a really good opportunity to migrate to a cloud-based digital platform that delivers great customer experience and then leverage that to target specific, very highly specific customer segments where we think we have a right to win. And when we look at what we do really well in our regional core footprint, that's mass affluent customers, particularly young professionals.

We have a great offering there. It starts with our student loan refinance product. And we dropped a bunch of things in around that. So, we think we can target that segment around the country once we pull this all together and make some real headway.

What goes with that is, you know, right now, we're largely all digital with that national play. We will pick up some branches in the Washington, D.C. area when HSBC closes and some in South Florida. That will give us an opportunity to go digital-first into those markets, combined with a light physical presence and do some test and learning because there may be other attractive cities around the country where we have a concentration of customers or calling base.

And we have more brand visibility where we might decide to open some branches and then see how that could augment our push to really attract those customers and gain primacy with those customers. So, a lot to play out on this, but it's very exciting. I don't know, Brendan, if you want to add anything to that.

Brendan Coughlin -- Head of Consumer Banking

Well, well said. I guess I'd just -- the color as that ties into scale for me is while we don't feel like we are required to get scale, I think the digital-first world is providing an opportunity to scale distinctively with revenue. In my opening remarks as part of our call script, you see us going from 3 million customers to 6 million customers since our IPO. I would argue that, you know, in a pre-digital world, that was not possible without M&A activity.

And we got a demonstrated track record of scaling our consumer business organically. And so, that's what you should think about as we bring together all our product capabilities nationally is how do we get scale and provide distinctive revenue opportunity without necessarily needing to do a big M&A acquisition. We have confidence we can do that. Obviously, we're supplementing that with HSBC and Investors.

But really, we think we can get great customer growth and deepening organically. The big question is, "Do you need physical presence over time? And what does that physical presence look like? And can you run it with a thin network, to Bruce's point, around piloting in Washington, D.C. and Florida, and then potentially other markets over time?" But all path lead to the next 18 months or so. We're really building out our exceptional mobile-first digital platform nationally.

And then, we can start to think through our distribution opportunities over time.

John Pancari -- Evercore ISI -- Analyst

OK. OK. Great. Thanks for taking my question.

Operator

Your next question will come from Gerard Cassidy with RBC. Go ahead, please.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Good morning, John. Good morning, Bruce.

John Woods -- Chief Financial Officer

Good morning.

Bruce Van Saun -- Chairman and Chief Executive Officer

Hey, Gerard.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Bruce, ca you -- I share your bullishness on the outlook for the industry and you folks as well, and you presented it very well today. But at the same time, we're always looking over our shoulders. So, when you guys sit around the conference room table to talk about the outlook, what are some of the risks that you have identified that maybe could kind of delay or interrupt this bullish outlook?

Bruce Van Saun -- Chairman and Chief Executive Officer

Yup. To me, Gerard, it's usually around the macro would be the principal risk. So, as the macro goes, it certainly has a big impact on bank results. It looks like the kind of omicron wave is not as lethal as feared.

And it hasn't interrupted business and commerce and people's behavior as much as it could have as much as prior waves did. So, I put that as a check in the plus column, although you never know what could happen later on over the course of the year. I do think the Fed has a fine balancing act to achieve here in bringing inflation under control. Inflation is really something to be feared.

And the Fed is going to aggressively combat that and hopefully they apply the medicine in a good pace with good kind of forewarning and the market adjusts to that. And it doesn't kind of snuff out the signs of a good recovery. We think the GDP could grow at 4%. But what could happen if the market doesn't respond well to those rate increases or if the equity market falls a bit because of that? So, that's another thing.

I think that the fiscal situation seems stable at this point. You know, it's going to be hard, I think, to pass more legislative initiatives that increase fiscal spend. And I think the spend that we have built up from prior rounds of fiscal stimulus is sufficient to carry us through. So, anyway, those are some of the things that we watch.

I still feel that the fundamental underpinning is very good, and the credit outlook is very good. So, I think there's a strong probability that this turns out to be a good year. But there's always that tail risk that stuff could happen. And that's the thing that we watch carefully.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Very good. Thank you for those insights. And just to follow up, John, on the guidance of the non interest income, I think you highlighted that you expect the mortgage fees in 2022 to be weaker in 2021, correct me if I'm wrong there, but more than offset by the strength in capital markets. What's your outlook? Because the capital markets number, as you guys pointed out, was extraordinary in the quarter.

I assume you're not expecting that to be a run rate. But can you give us some color on what you're looking for in the capital markets line in 2022 versus 2021, and also the mortgage banking fees?

John Woods -- Chief Financial Officer

Yeah, I'll start off and turn it over to Don and Brendan if they want to add any further color. But I mean -- I think we had an extraordinary quarter in the fourth quarter, taking share and, you know, kind of climbing the league tables. It was a result of multi-year kind of meticulous investments organically with some fee-based bolt-ons that are coming together, and frankly, haven't really fully achieved this potential in some respects in terms of synergies from the deals that we've done, etc., that are going to contribute in 2022. So, I'd say that the momentum in the backdrop is still strong.

Bruce mentioned that the macro is one of the areas as long as that keeps going. We do see some very solid momentum in the cap markets business. M&A and loan syndications were the lead in 4Q. And the pipelines look very good into early '22 in terms of what we can see there.

I'll make a comment on mortgage and then maybe just see if Don and Brendan want to add. But I mean, on mortgage, I would say the way to think about that is, yeah, it'll be down. But I still think that given the investments we've made and the share that we've been able to take, we'll be above pre-pandemic levels, the 2019 base year. I think 2022, you can think of that as being a year where we'll solidify, normalize a bit in terms of volumes.

And, you know, I'd say that, you know, maybe the market's down 30%, but our volumes will be down less than that. Margins are still a bit under pressure, in particular, in the third-party space in production. But that is meaningfully offset by what's going on the servicing side of the business where you see continued increase in UPBs for us and as the rate rise is starting to take off here a little bit. You see lower amortizations.

So, you put all that together and you're going to have a continued contributions from mortgage that will be greater than pre-pandemic. So, maybe I'll just turn it to Don if he has anything else to add in the cap markets.

Don McCree -- Head of Commercial Banking

Yeah. So, you know, my perspective is assuming the market stay strong and we expect them to stay strong, so think about relatively low interest rates, lots of liquidity in a reasonable economy, that's a great backdrop for continued deals. You know, we saw a lot of things try to run to the finish line in the fourth quarter due to potential changes in tax laws. But I have to say our pipelines are as high as they've ever been as we roll into the -- in the first quarter.

And we expect those to continue to build. The other thing I'd just give you perspective on is we've got a diversification of revenue streams down our capital markets business. And that is furthered by JMP which moves us into the equity business as an interesting industry verticals. And then we have DH Capital which should close sometime in the first quarter, maybe early second quarter, which would give us incremental opportunities.

And that's only just beginning to be realized. And the thing that's really driving the felines is we're playing multiple roles on every -- a lots of transactions now. So, not only are we advising, but we're also financing and we're capturing the wealth business. And there's a lot of, you know, very good cross-sell and a lot of value add for our clients.

So, it feels very strong. I think we've got an increasingly strong reputation with the private equity community, particularly in the middle market space, as we show them these interesting opportunities and we execute well for them. So, it feels very good. What the exact numbers are going to be, it's very hard to tell.

But sitting here in the second week of January, I'm pretty optimistic about what the year is going to look like.

Brendan Coughlin -- Head of Consumer Banking

Yeah, and on mortgage, I'd just add that, obviously, pulling up at a high level. As you all know, mortgage is a natural hedge against the interest rate environment for us. And while in many ways this cycle is a lot like other cycles, the difference is that was exacerbated significantly. So, you got a much bigger pop just given how quickly everything came at us in COVID and you got a steeper decline.

Having said that, to John's point, we feel much better positioned than pre-COVID levels in 2019. And I think you'll see in our results in 2022, despite us projecting the MBA and projecting a market down 30%, we should outpace our performance in '19. And that's with the backdrop of margins at historically low levels. So, you know, I think the question for us is how much better will we be over time than our 2019 pre-COVID run rates? And a lot of that will have to do with how quickly margins renormalize as capacity leaves the system.

We're starting to see that now as rates tick up. Lenders are starting to shed capacity. We have not yet seen margins stabilize or certainly turn around, but we expect that to happen at some point. Question, does that happen in the first half of this year or second half of this year? We'll see.

But we feel very good that the underlying strength of the business is significantly better than 2019 levels.

Bruce Van Saun -- Chairman and Chief Executive Officer

Let me just close and give everybody a shot here to comment to your question, Gerard. But if you just think about the long term, you know, amplifying Don's comments about where we're positioned, the commercial bank and capital markets in particular, feel really, really good about what we've built out and the secular transfers. The private equity pools of capital, they're increasing their ownership of U.S. companies.

And we're very well-positioned to cover those companies and provide services to them. And with the big middle market and mid-corporate space that we have, we have an opportunity to connect the intermediation of capital from private equity to corporate America. And that's a trend that I think is going to stay in place for a long time. And we're extremely well-positioned to capture that and drive revenue growth.

So, we like what we put together. And I think we're still scratching the surface of the potential of really gaining the synergies that come from what we've assembled. And then to follow-up on Brendan's point, it was always important for us to really get a profitable and highly respected and good mortgage business in place, because if we want to be in our consumer bank, a trusted advisor on somebody's life journey, the mortgage is incredibly important product to individuals. And so, we've now accomplish that.

So, feel good about what we've done in the capital market space and what we've done in the mortgage space. It's been a combination of organic investments, as well as inorganic acquisitions. The one place that we're still kind of short of the mark that we haven't moved, so to speak, to the other side of the river and get where we want to get to is in wealth. And it's not for lack of trying.

So, we've made significant organic investments there. We've had one successful acquisition with Clarfeld Advisors, which has gone very, very well. And we're still in the hunt to see if we can put more together there to get us where we need to get to.

Gerard Cassidy -- RBC Capital Markets -- Analyst

Great. I appreciate all the insights. Thank you.

Operator

Your next question will come from Terry McEvoy with Stephens. Go ahead, please.

Terry McEvoy -- Stephens Inc. -- Analyst

Good morning. A question for John. Could you just update us on the size of Citizens Access? And maybe how do you best use that product in a rising interest rate environment? And then the HSBC online platform, will the conversion there occur on the same pace and same timeline as via the bank itself?

John Woods -- Chief Financial Officer

Yeah. So, with respect to the first question on Citizens Access, yeah, we are in that kind of $4.5 billion, $5 billion range. Most of that is -- we've had some run-off in terms of the CD book.

Bruce Van Saun -- Chairman and Chief Executive Officer

Intentional.

John Woods -- Chief Financial Officer

Yeah, intentionally. Yeah, I mean, so when we went out with that, that was a balanced approach in terms of savings in CD offer, and that was extremely successful in the third quarter of '18 and has really served us well. And we're building on that platform. We've launched a national storefront on the back of that platform where we've added the ability to start bundling mortgage and education loans in that storefront when you log on to Citizens Access.

And so, over time, that will be, again, a big driver of how we are distinctive with our deposit offerings and being able to broaden out the product set. And then the second half of the question was on HSBC --

Bruce Van Saun -- Chairman and Chief Executive Officer

HSBC coming across and timing.

John Woods -- Chief Financial Officer

Yeah. And so that timing is mid-February. We feel really good about that. You know, I think that's almost $8 billion of deposits in middle of February.

And so, that's going to add a lot of cash to where we are at the end of the first quarter. And that's really should be thought as well in the context of the Investors acquisition where we looked at those deals as one, you know, sort of entry into the New York metro, not just strategically but also financially, because when you put those two things together, that's around an 80% or so LDR combined profile. So, those deposits are there to be thought out in the context of the overall Investors and HSBC acquisition.

Bruce Van Saun -- Chairman and Chief Executive Officer

You know, Brendan, maybe you could just try to carve out the online aspect of HSBC because that was another thing that really was intriguing when we had the opportunity to buy that business.

Brendan Coughlin -- Head of Consumer Banking

Yeah, absolutely. It does help us further accelerate our national scale with our online deposit platform. And to the question, the timing on the online integration will be the same exact timing is core branch network acquisition in mid -- that will all happen together. There's a few small differences with the HSBC online platform from our Citizens Access.

One is that the interest rates are actually a lot lower. They're at 15 basis points versus our Citizens Access is at 40 basis points. And one of the reasons why they are a little bit lower is that a handful of those customers have some minor connectivity to their physical channels. And so, we're maintaining that and making sure the customers have access to our new distribution footprint where they happen to be in our franchise.

So, you can start to see the physical and digital worlds coming together in this strategy. But we view this as a significant accelerant to our national expansion plans and provides a great pool of customers for us to ultimately deepen with as, to John's point, we've expanded the storefront with mortgage and student loan refinancing. As I mentioned in my opening remarks, we're going to add more products over the course of 2022. So, this is fertile ground for revenue growth that we did not put into our deal model.

Terry McEvoy -- Stephens Inc. -- Analyst

Thank you. And then just a quick follow-up. Can you just remind us the impact on service charges and fees in 2022 expected from the rollout of the Peace of Mind product, the Citizens Peace of Mind?

Brendan Coughlin -- Head of Consumer Banking

Yeah, I can take that. So, the way to really think about this is opportunity cost of not reinflating. And so, the Peace of Mind program really is a 24-hour grace. It's the third or fourth move we've made in addition to a handful of other moves, including student account that is completely protected from overdraft.

We've got $5 overdraft pass. We've got a once-a-year automatic forgiveness for customers in certain products. And now we've introduced Peace of Mind, which is essentially a 24-hour grace period and a great customer experience for all of our customers to empower them to avoid unnecessary fees. And we think the payback on this is quite strong.

It will be about year three where we breakeven and turn the corner for the revenue benefits to offset the fee shortfall that we're giving out. But really, we expect the overdraft line to be flattish going forward. You know, it would have cost -- we would have been able to get a pop of, you know, call it 8 million to 10 million a quarter, at a normalized market where stimulus benefits burn down. But we think it's the right thing to do the --

Bruce Van Saun -- Chairman and Chief Executive Officer

About a 40 million opportunity cost.

Brendan Coughlin -- Head of Consumer Banking

It's about 40 million opportunity cost annually, but that more than offsets over time with revenue benefits. And, you know, to John's comment, we've already seen a significant early indicators of positivity coming from our customer base. Call center and complaint volume were down about 40% in this category. And our NPS score, particularly with under 40 age customers, has really started to increase right away.

And we just rolled this out in October. So, we're very, very pleased about it, about the early behavioral impacts from our customer base.

Terry McEvoy -- Stephens Inc. -- Analyst

Great. Thanks, everyone.

Brendan Coughlin -- Head of Consumer Banking

Sure. OK. It looks like that's the end of the queue here for Q&A. I know it's a busy day with other banks reporting.

But once again, I want to thank everybody for dialing in today. We appreciate your interest and your support. Have a great day. And everybody stay well.

Thank you.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Kristin Silberberg -- Vice President of Investor Relations

Bruce Van Saun -- Chairman and Chief Executive Officer

John Woods -- Chief Financial Officer

Brendan Coughlin -- Head of Consumer Banking

Don McCree -- Head of Commercial Banking

Peter Winter -- Wedbush Securities -- Analyst

Ken Usdin -- Jefferies -- Analyst

John Pancari -- Evercore ISI -- Analyst

Gerard Cassidy -- RBC Capital Markets -- Analyst

Terry McEvoy -- Stephens Inc. -- Analyst

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