John F. Woods
Vice Chairman and Chief Financial Officer at Citizens Financial Group
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 the credit provision benefit. Revenue of $1.7 billion was up 4% linked quarter given strong growth in fee income that [Indecipherable] of 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 16% 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 $360 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 was 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 redeployed some of our excess liquidity into loan growth.
We also made continued progress lowering our interest-bearing deposit costs, which were down 1 basis point to 13 basis points. On the bottom left side of the page you can see we remain 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 towards the short ascent [Phonetic] so we are well positioned to benefit when the Fed begin 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 the backdrop of strong competition in excess industry capacity. We saw ongoing pressure on gain on sale margins, particularly in third-party channels and seasonally lower production volumes. Mortgage servicing income improved as our third-party servicing book was 3% linked quarter to $90 billion [Phonetic] Card fees were stable as debit transactions and 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 in 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 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 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 of more than 6% excluding PPP. Retail loans were 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 utilizations levels -- levels picked 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 in utilization over the coming quarters as some of the issues holding back investments, such as supply chain challenges and labor shortages resolve. 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 and 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 earlier -- early this year, we thought it would be helpful to make a few points about how we see our deposit cost 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 up cycle. When you add that all up, we are confident that our deposit betas will be meaningful lower -- meaningfully lower than the prior cycle.
Moving on the 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 continued 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 remains 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 to CET1 from the pending HSBC acquisitions and the ISBC transaction will be effectively neutral given the stock to be issued in the deal.
Shifting gears towards business strategy a bit. We thought it will 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.