Citizens Financial's Net Interest Income Accelerates 4.4% as NIM Expands Further
The regional lender posted $1.63 billion in net interest income, up 14% year-over-year, as its net interest margin widened to 3.17%.
Citizens Financial Group (CFG) reported second-quarter net interest income of $1.63 billion, a 4.4% increase from the prior quarter and a 14% jump from a year earlier, as the regional lender's multi-quarter margin expansion streak continued. Net interest margin (FTE) widened 3 basis points quarter-over-quarter to 3.17%, extending a recovery that has added 22 basis points over the past year from 2.95% in the second quarter of 2024.
The NII acceleration came as average loans grew 2% quarter-over-quarter to $146.1 billion, up from 1% growth in each of the prior two quarters, with commercial lending leading the expansion at 3% quarter-over-quarter to $76.5 billion. Average deposits rose 1% to $183.6 billion, buoyed by the Private Bank franchise, where spot deposits climbed 7% quarter-over-quarter to $17.8 billion.
Deposit costs, however, reversed course after two consecutive quarters of declines. Interest-bearing deposit costs rose 4 basis points to 2.08%, following a 16-basis-point drop in the first quarter and a 15-basis-point decline in the fourth quarter of 2023. Total deposit costs ticked up 3 basis points to 1.63%, a signal that the tailwind from deposit repricing may be fading as competition for balances intensifies.
Fee income provided a second engine of growth. Capital markets fees reached a record second-quarter total of $153 million, up 14% from the first quarter and 46% from a year ago, driven by higher loan syndication and debt and equity underwriting activity. Wealth management fees also set a new record at $102 million, rising 2% quarter-over-quarter and 16% year-over-year on the back of asset inflows and market appreciation. Mortgage banking fees remained a drag at $42 million, down 42% year-over-year on lower MSR valuation results.
Credit quality continued to improve across the portfolio. The net charge-off ratio fell to 37 basis points, down 2 basis points from the first quarter and well below the 58 basis points recorded in the first quarter of 2024. Nonaccrual loans declined to 0.97% of total loans, a 7-basis-point improvement quarter-over-quarter, as commercial real estate workouts progressed. Provision for credit losses fell to $134 million, down 4% from the prior quarter and 18% from a year earlier, with the allowance coverage ratio declining to 1.48% from 1.52%.
The operating leverage showed through in profitability metrics. The efficiency ratio improved to 61.1% from 63.6% in the first quarter, reflecting 6.4% positive operating leverage year-over-year. Return on tangible common equity reached 13.9%, up from 12.2% in the first quarter and 11.0% a year ago. The Private Bank contributed $0.15 to earnings per share, up from $0.11 in the first quarter, as the unit's deposit base expanded to $17.8 billion.
Capital ratios edged lower as loan growth outpaced retained earnings. The CET1 ratio declined 10 basis points to 10.4%, continuing a gradual slide from 10.7% in the third quarter of 2023. Citizens returned $422 million to shareholders, including $225 million in buybacks and $197 million in dividends, slowing the repurchase pace from $300 million in the first quarter. To fund the balance-sheet expansion, FHLB advances surged to $5.8 billion from $2.5 billion at the end of the first quarter.