Citizens Q2 2026 diluted EPS rose 41% to $1.30 as net interest margin widened 22 bps to 3.16%, capital markets fees jumped 46% and net charge-offs fell to 0.37% of loans.
Revenue
$2.3B
+12.1% YoY
Net income
$554M
+37.8% YoY
Diluted EPS
$1.30
+41.3% YoY
Overview
Citizens Financial Group, the Providence, Rhode Island-based regional bank, earned $587 million in the second quarter of 2026 (April–June), up 35% from $436 million a year earlier. After preferred-stock dividends, $554 million was left for common shareholders, and diluted earnings per share rose 41% to $1.30 from $0.92. Per-share profit grew faster than profit itself because the bank had about 10 million fewer diluted shares outstanding (426.7 million vs. 436.5 million) after a year of buybacks.
Three things drove the jump: more net interest income from a wider margin, a 46% rise in capital markets fees, and lower loan losses. Costs grew 6%, about half the pace of revenue.
Key metrics
Metric
Q2 2026
Q2 2025
YoY Change
Total revenue
$2,283M
$2,037M
+12.1%
Net interest income
$1,631M
$1,437M
+13.5%
Noninterest (fee) income
$652M
$600M
+8.7%
Net interest margin
3.16%
2.94%
+22 bps
Noninterest expense
$1,394M
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Total revenue is net interest income plus noninterest income. A "basis point" (bp) is one-hundredth of a percentage point. Figures are from the 10-Q unless noted; the June 30, 2025 CET1 ratio is from the Q2 earnings release (Form 8-K, Exhibit 99.1).
First half of 2026: net interest income of $3,193 million (up from $2,828 million), fee income of $1,258 million (up from $1,144 million), net income of $1,104 million (up from $809 million), and diluted EPS of $2.42 (up from $1.69). Efficiency ratio was 62.3% vs. 66.3%, and ROTCE 13.1% vs. 10.4%.
Takeaway: This quarter's gain came mostly from Citizens' own balance sheet, not from a change in interest rates. The margin widened because costly hedges that had been dragging on income are rolling off and older fixed-rate loans and securities are being replaced at higher yields. Management's outlook says these effects keep going into 2027, which makes the earnings improvement look more durable than a one-quarter jump.
Net interest income: the margin did the heavy lifting
Net interest income is what a bank earns on loans and securities minus what it pays depositors and lenders — for Citizens it is about 70% of revenue. It rose $194 million (13.5%) to $1,631 million.
The net interest margin (NIM) measures that spread as a percentage of the bank's interest-earning assets — roughly, how many cents of net interest income each dollar of loans and securities produces in a year. It widened from 2.94% to 3.16%. The 10-Q attributes the increase in net interest income to "an increase in interest-earning assets, higher net interest margin, terminated swap impacts, and fixed-rate asset repricing benefits."
Most of the margin gain came from the cost side, not the asset side:
Asset yields barely moved. Average interest-earning assets yielded 4.90% vs. 4.89% a year ago. Commercial and industrial loans yielded more (5.35% vs. 4.84%), while commercial real estate (5.41% vs. 5.73%) and home equity (6.43% vs. 7.14%) yielded less.
Funding got cheaper. The average rate on interest-bearing deposits fell to 2.08% from 2.35%, and total interest-bearing liabilities fell to 2.31% from 2.59%. Interest expense on deposits dropped to $747 million from $802 million even though those deposits grew by about $7.0 billion on average. Time deposits (CDs) fell to 3.39% from 3.85%.
Hedge drag is fading. Earlier, Citizens entered interest-rate swaps (contracts that trade a fixed rate for a floating one) that lost value when rates rose. After a swap is terminated, that loss still gets booked as reduced interest income over time. As those amounts run off, reported income goes up.
Average interest-earning assets grew $10.5 billion to $206.8 billion. Most of that was loans (up $7.3 billion), plus $2.6 billion more cash held at banks and $1.6 billion more securities.
Fee income: capital markets and wealth up, mortgage down
Noninterest income, the fees a bank earns outside of lending, rose $52 million (9%) to $652 million:
Fee line
Q2 2026
Q2 2025
Change
Capital markets fees
$153M
$105M
+46%
Wealth fees
$102M
$88M
+16%
Service charges and fees
$117M
$111M
+5%
Letter of credit and loan fees
$52M
$45M
+16%
Foreign exchange and derivative products
$47M
$41M
+15%
Card fees
$89M
$90M
−1%
Mortgage banking fees
$42M
$73M
−42%
The 10-Q says capital markets fees rose on "higher M&A, loan syndication, and bond underwriting fees." Wealth fees grew with assets under management, "reflecting net inflows and market appreciation." Mortgage banking fell $31 million because of "lower MSR valuation results, net of hedge impact." An MSR (mortgage servicing right) is the value of the right to collect payments on mortgages the bank services, and its accounting value swings with interest rates. That makes the mortgage decline mostly a mark-to-market effect, not a sign of weaker lending volume. Excluding mortgage, fees grew about 16% ($610 million vs. $527 million).
Capital markets fees depend on deal activity, so they are the least predictable part of this growth.
Costs and efficiency
Noninterest expense rose $75 million (6%) to $1,394 million. Salaries and benefits accounted for $64 million of the increase, which the filing ties to "hiring related to the Private Bank and Private Wealth build-out, and compensation associated with growth in capital markets fees." Outside services rose partly because of costs to implement Reimagine the Bank, a technology and efficiency program.
The efficiency ratio, the share of revenue consumed by operating costs (lower is better), improved to 61.1% from 64.8%. Revenue grew 12.1% while expenses grew 5.7%, a gap the Q2 earnings release calls positive operating leverage of 6.4%.
In its Q2 earnings presentation, management says Reimagine the Bank should have "minimal EPS impact in 2026 as start-up costs offset in-year benefits." It targets a pre-tax run-rate benefit of about $100 million by year-end 2026, $200+ million by year-end 2027 and $450+ million by year-end 2028.
The Private Bank
The Private Bank serves high- and ultra-high-net-worth clients. According to the Q2 earnings presentation (8-K, Exhibit 99.2), it earned $62.0 million in Q2 2026 vs. $26.2 million in Q2 2025. That was $0.15 of the $1.30 in EPS, up from $0.06 a year earlier. Its spot deposits were $17.8 billion (vs. $8.7 billion), spot loans were $9.7 billion (vs. $4.9 billion), and its efficiency ratio was 51.4%. The 10-Q attributes the rise in total deposits since year-end to Private Bank growth. Year over year, it added roughly $0.09 of EPS, about a quarter of the company's $0.38 increase.
Loans and deposits
Loans: period-end loans and leases were $147.5 billion at June 30, 2026, up 3% ($4.8 billion) from December 31, 2025. Commercial and industrial loans grew $4.2 billion (+9%), driven by "net new money originations in corporate banking and higher line of credit utilization." Commercial real estate shrank $763 million (−3%) through paydowns. Retail loans rose $1.3 billion, led by home equity (+$1.2 billion) and mortgages (+$1.4 billion), while the auto book continued its planned runoff (−36% to $1.5 billion). Average loans were up 5.3% year over year.
Deposits: period-end deposits were $185.6 billion, up 6% year over year according to the earnings release, including $9.1 billion of Private Bank growth. Noninterest-bearing demand deposits, which cost the bank nothing, were $40.9 billion (22% of the total). The release gives the loan-to-deposit ratio as 79.5%, meaning loans are fully funded by deposits with room to spare.
Credit quality
Credit improved on nearly every measure:
Net charge-offs (loans written off as uncollectible, net of recoveries) fell to $135 million, or 0.37% of average loans on an annualized basis, from $167 million (0.48%). Commercial real estate losses dropped to $22 million from $53 million. Commercial and industrial losses rose to $49 million from $39 million.
Nonaccrual loans (loans that have stopped paying, so the bank no longer counts their interest as income) were $1,435 million, or 0.97% of loans, down from $1,504 million (1.05%) at year-end. Commercial nonaccruals fell. Residential mortgage nonaccruals rose $24 million.
Criticized commercial loans (those flagged internally as higher risk) fell to $5.3 billion from $6.3 billion at year-end. CRE criticized loans fell to $3.1 billion from $3.7 billion.
Reserves: the allowance for credit losses was $2.2 billion, or 1.48% of loans (1.59% a year earlier, per the release). It covers nonaccrual loans 1.52 times.
Office exposure. Office loans were $4.1 billion, about 2.8% of total loans. That includes $2.26 billion of "other general office," down from $2.42 billion at year-end, and $1.85 billion of credit-tenant-lease and life-sciences loans. Total CRE is $23.8 billion (16% of loans), with multifamily the largest piece at $8.6 billion. For general office loans, Citizens sets its loss reserve using a harsher economic scenario: peak unemployment of about 9.5%, compared with about 5.3% in its base forecast.
The reserve ratio is declining, but not because the bank is assuming better conditions. Its base forecast still assumes a mild recession. The 10-Q attributes the lower ratio to loan mix: higher-loss auto and purchased retail loans are running off, and CRE balances are shrinking.
Capital and buybacks
The CET1 ratio (common equity tier 1 capital divided by risk-weighted assets, the main regulatory cushion against losses) was 10.4%. That compares with 10.6% at year-end and a 9.0% regulatory minimum including Citizens' stress capital buffer. The ratio slipped because risk-weighted assets grew $4.8 billion, mostly from commercial and industrial loans, while the bank also returned capital. Counting unrealized losses on securities (which a pending regulatory proposal would phase into capital over five years), CET1 would be 9.2%.
Citizens repurchased $225 million of stock in Q2 and $525 million in the first half (8.3 million shares), vs. $400 million in the first half of 2025. It paid a $0.46 quarterly dividend and had $775 million of buyback authorization left at June 30. Period-end shares outstanding fell to 422.7 million from 429.2 million at year-end. Tangible book value per share was $38.29, vs. $38.07 at year-end.
ROTCE (net income for common shareholders relative to shareholders' equity excluding goodwill and intangibles) rose to 13.9% from 11.0%. Management's target of 16–18% by end of 2027 (earnings presentation) implies further improvement from here.
On July 30, 2026, Citizens issued $400 million of 6.750% Series J preferred stock. It plans to use the proceeds to redeem some or all of its Series G preferred on October 6, 2026.
Outlook
Management's Q3 2026 guidance vs. Q2 2026, from the Q2 earnings presentation (8-K, Exhibit 99.2):
Item
Q2 2026 actual
Q3 2026 outlook
Net interest income
$1,631M
Up 2.5–3.5%
Noninterest income
$652M
Up ~1%
Noninterest expense
$1,394M
Stable to up slightly
Net charge-offs
$135M (0.37%)
Stable to down slightly
CET1 ratio
10.4%
~10.5%, with ~$125M of buybacks
Tax rate
22.3%
~22%
For the full year, management says 2026 is trending ahead of its January guidance. It expects net interest income above its guidance range, fees toward the high end, and slightly higher expenses because of strong revenue. It also expects about 600+ bps of positive operating leverage. The presentation projects the margin reaching about 3.22–3.27% by Q4 2026 and 3.30–3.50% by Q4 2027 (FTE basis), assuming a 10-year Treasury yield of about 4.50%. It attributes most of that path to scheduled factors: runoff of terminated-swap costs and Non-Core loans (about $1.6 billion left, expected to fall to about $1.0 billion by year-end) and fixed-rate asset repricing.
Our view: The earnings trend is well supported. The margin gains come largely from contractual runoff, credit costs are falling, and the Private Bank has reached meaningful profit. Two things limit the outlook. First, Q3 buybacks are guided down to about $125 million from $225 million while the bank lets CET1 rebuild toward 10.5% and funds commercial loan growth, so share-count reduction will add less to EPS growth. Second, the balance sheet is "slightly asset sensitive": the 10-Q estimates a gradual 100 bp rate cut would reduce net interest income by 0.9% over 12 months. Deeper-than-expected rate cuts would therefore cost some of the projected margin gain. The main risk to watch is credit: commercial and industrial charge-offs edged up while the loan book is growing fastest in that category.