CITIZENS FINANCIAL GROUP INCRI

Net interest income is our largest source of revenue and is the difference between the interest earned on interest-earning assets (generally loans and investment securities) and the interest expense incurred in connection with interest-bearing liabilities (generally deposits and borrowed funds). The level of net interest income is primarily a function of the difference between the effective yield on our average interest-earning assets and the effective cost of our interest-bearing liabilities. These factors are influenced by the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as economic conditions, competition for loans and deposits, the monetary policy of the FRB and market interest rates. For further discussion, refer to the “Market Risk” and “Risk Governance” sections of our 2023 Form 10-K.

The following tables present the major components of our net interest income. Average balance represents amortized cost, excluding the unamortized basis adjustments related to the transfer of certain HTM securities from AFS, and LHFS, at fair value. The yield/rate is based on annualized interest income or expense for the periods presented and includes the impact of hedging activities associated with the respective asset and liability categories.

(1) Net interest income and net interest margin is presented on a FTE basis using the federal statutory tax rate of 21%. The FTE impact is predominantly attributable to commercial and industrial loans for the periods presented.

Net interest income decreased $153 million, or 10%, and decreased $532 million, or 11%, for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, reflecting lower net interest margin and a decline of 1% in average interest-earning assets.

Net interest margin on a FTE basis decreased 26 basis points and 32 basis points for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, reflecting higher funding and swap costs and the impact of building liquidity, partially offset by the benefit of Non-Core portfolio runoff. The decrease during the nine-month period is also partially offset by higher interest-earning-asset yields.

Average interest-earning assets decreased $2.4 billion and $2.6 billion for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, driven by a decline in total loans and leases, partially offset by an increase in investment securities and cash held in interest-bearing deposits.

Average deposits decreased $2.4 billion for the three months ended September 30, 2024 compared to the same period in 2023, driven by a reduction in higher-cost Treasury deposits and rate-driven migration, partially offset by growth in Private Bank deposits. Average deposits were stable for the nine months ended September 30, 2024 compared to the same period in 2023.

Average total borrowed funds increased $132 million and decreased $2.3 billion for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023, reflecting a decline in FHLB advances driven by Non-Core portfolio runoff, and a remix of funding to long-term senior debt and secured borrowings collateralized by loans. These factors are largely offsetting during the three-month period, with the decrease during the nine-month period driven by FHLB advances.