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While Citizens Financial Group Inc. sees stronger organic growth opportunities than peers, the company remains on the pursuit for acquisitions after announcing plans to acquire the East Coast branches and national online deposit business of HSBC Bank USA NA.
In the latest Street Talk podcast, Citizens Financial Group Chairman and CEO Bruce Van Saun discussed the HSBC deal, the company’s appetite for future acquisitions, balancing physical branches against digital offerings and the outlook for credit quality and loan growth.
Van Saun said the company has greater exposure to consumer lending, allowing it to produce stronger loan growth than peers. Citizens grew loans by 4.8% in 2020, well above the 1.3% median growth reported by the top 20 banks in the industry. The company's loans contracted slightly in the first quarter of 2021 but the decline was not as great as experienced by other large banks.
Van Saun said commercial line utilization rates are currently near all-time lows at 31%, but the company believes that metric has hit a trough and sees signs of it increasing in the second half of 2021. The executive further noted that the loan pipeline associated with acquisitions was quite tepid in 2020 and the first quarter of 2021, but pipelines are now back to pre-pandemic levels.
"We're pretty optimistic that the second half of the year, we'll start to see corporate loan growth pick up," Van Saun said. "On the consumer side, we're even more confident because we play in some very attractive spaces. Our student loan business and student loan refinancing business, our point-of-sale finance with some of the key partners we have like Apple and Microsoft and BJ's Wholesale, we see a lot of growth prospects in those relationships."
While Citizens sees stronger loan growth in the future, Van Saun said the company remains open to additional acquisitions. The executive said the company has never shied away from acquisitions of fee-based businesses that allow it to get "farther down the track faster" and offer customers more capabilities. In recent years, Citizens has acquired three investment banking boutiques — Western Reserve Partners, LLC in May 2017, Bowstring Advisors LLC in February 2019; and Trinity Capital, LLC in March 2020 — and a mortgage business in August 2018.
"Those have all been really strong deals with great outcomes for us. And so we're still looking for more of those and stay tuned. Hopefully, we'll have some things to announce this year," Van Saun said.
The executive also see potential acquisition opportunities of strong deposit franchises in the bank space, particularly given the pressure that smaller players are facing to invest in digital channels and technology.
"We'll keep our eyes open and see if something falls our way. But I certainly don't feel the need to go out and force the action there. I think we can sit back and be opportunistic and be very selective to make sure it's a strong franchise that culturally is going to work and then the math as importantly for our shareholders that we can get good deal metrics."
Citizens has made its own investments in digital channels, transformed its branches to more resemble advice centers and rolled out a digital-only bank called Citizens Access a few years ago. Citizens also acquired the national online deposit business of HSBC Bank along with its purchase of 80 East Coast branches. Van Saun said the company's most satisfied customers value the omnichannel experience and use digital channels and branches at different junctures, but noted that there is not as great of a need today for a heavy physical distribution operation.
The HSBC transaction helped Citizens expand its footprint in several key metro markets, giving it 66 branches in metro New York City, nine branches in the Mid-Atlantic/Washington D.C. area and five branches in Southeast Florida near Miami. Van Saun said Washington D.C. and Miami are markets where it believes having a thin branch presence makes considerable sense. The executive said there are other cities where Citizens has a significant number of customers or employees such as Dallas or Nashville that could make sense for future expansion with a thin branch strategy.
"But you have to look at it as a continuum — you need your branches, you need to be strong in digital, and you need to have a very high-caliber contact center to satisfy your customers," Van Saun said.
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Street Talk Episode #79
Street Talk Episode #78