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07/21/2016

Citizens Financial Group, Inc. Reports Second Quarter Net Income of $243 Million; Diluted EPS of $0.46 up 31% from Second Quarter 2015

ROTCE of 7.3% in second quarter 2016 compared with Adjusted 6.7%* in second quarter 2015

Positive operating leverage of over 3% on a year-over-year Adjusted basis*

Continued progress on growth initiatives; Additional TOP III efficiency initiatives launched

Completed sale of $310 million troubled debt restructuring portfolio with third quarter 2016 gain of
approximately $70 million

PROVIDENCE, R.I.--(BUSINESS WIRE)-- Citizens Financial Group, Inc. (NYSE: CFG or “Citizens”) today reported second quarter net income of $243 million, or $0.46 per diluted common share, up 28% and 31%, respectively, from $190 million and $0.35 per diluted common share in second quarter 2015. Compared with first quarter 2016, net income increased 9% from $223 million and diluted earnings per common share increased 12% from $0.41. Second quarter 2015 results include an after-tax restructuring charge impact of $0.05 per diluted share, largely related to efforts to improve processes and enhance efficiencies as well as rebranding and separation from RBS. Adjusting for these charges, second quarter 2015 Adjusted* EPS was $0.40 and second quarter 2016 year-on-year improvement was 15%. Return on Average Tangible Common Equity* (“ROTCE”) was 7.3% in second quarter 2016 compared to 6.6% in first quarter 2016 and an Adjusted* 6.7% in second quarter 2015.

Chairman and Chief Executive Officer Bruce Van Saun commented, “Our second quarter results reflect consistent progress in executing well on our plan and improving our financial performance. We continue to deliver strong loan and deposit growth, and generated 8% sequential quarter fee income growth led by strong momentum in our Capital Markets business and broad strength in our Consumer segment. We are carefully balancing the need for strong expense discipline with our desire to fund the investments that will drive future growth.”

“The Federal Reserve’s non-objection to our 2016 capital plan reaffirms the progress we’ve made in our capital planning process and our commitment to prudent allocation and distribution of capital. We remain committed to delivering enhanced returns for our shareholders.”

Citizens announced the launch of the next phase of its Tapping Our Potential (“TOP”) efficiency programs, which are designed to improve the overall efficiency and effectiveness of the organization while self-funding investments that drive future growth.

Citizens has completed the previously announced sale of consumer real estate-secured loans classified as troubled debt restructurings (“TDR Transaction”). The TDR Transaction will result in a third quarter 2016 pre-tax gain of approximately

$70 million on the sale of $310 million of loans held for sale. The company plans to utilize approximately 30% to 40% of the TDR Transaction gain to fund costs associated with its efficiency and balance sheet optimization initiatives in third quarter 2016.

CFG’s Board of Directors declared a quarterly common stock dividend of $0.12 per common share payable on August 17, 2016 to shareholders of record at the close of business on August 3, 2016.

Second Quarter 2016 vs. First Quarter 2016

Key Highlights

• Second quarter highlights include net income growth of 9%, with 4% revenue growth highlighted by 2% average loan and deposit growth and a 1% improvement in the efficiency ratio* to 65%. These results helped drive a 70 basis point improvement in ROTCE* to 7.3%.

Results

• Total revenue of $1.3 billion was up $44 million, or 4%, driven by 8% noninterest income growth and 2% net interest
  income growth.
  • Net interest income of $923 million was up $19 million, or 2%, driven by continued strong commercial and student loan growth.
  • Net interest margin of 2.84% compares with 2.86% in the prior quarter, as the benefit of higher loan growth and improved loan yields and stable deposit costs was more than offset by lower investment portfolio yields and an increase in term debt borrowing costs.
  • Noninterest income of $355 million increased $25 million, or 8%, with particular strength in capital markets fees and growth in mortgage banking fees and service charges from seasonally lower first quarter levels, partially offset by lower securities gains.
  • Headcount down 74, reflecting the benefit of our efficiency initiatives.
• Noninterest expense of $827 million increased 2%, reflecting salaries and employee benefits, largely related to a change in timing of merit increases and incentive payments, as well as higher regulatory, fraud and insurance costs.
• Efficiency ratio* of 65% improved 1%.
• Provision for credit losses of $90 million remained relatively stable, with an $18 million decrease in net charge-offs and a $25 million reserve build tied to continued loan growth.

Balance Sheet

• Average interest-earning assets increased $3.3 billion, or 3%, driven by strong loan growth.
• Average deposits increased $2.0 billion, or 2%, reflecting growth in every deposit category.
• Nonperforming loans and leases (“NPLs”) to total loans and leases ratio improved 6 basis points to 1.01% with improvement in both the commercial and retail portfolios. Allowance coverage of NPLs improved to 119% from 113%.
• Net charge-offs improved to 25 basis points from 33 basis points, with a reduction in both commercial and retail.
• Completed $1.0 billion offering of five-year 2.550% senior unsecured bank notes.

• Capital strength remained robust with a common equity tier 1 (“CET1”) risk-based capital ratio of 11.5%. Dividend increased 20% to $0.12 per common share as of May 4, 2016.

Second Quarter 2016 vs. Second Quarter 2015

Key Highlights

• Second quarter highlights include net income growth of 28%, or 13% on an Adjusted* basis, led by a 10% increase in net interest income and a 12 basis point improvement in net interest margin, along with 3% Adjusted* operating leverage. The efficiency ratio* improved to 65% from an Adjusted* efficiency ratio of 67%.

Results

• Total revenue of $1.3 billion increased 7%, driven by strong loan growth and net interest margin improvement as well as growth in service charges and fees and capital markets fees.
  
  • Net interest income was up $83 million, primarily reflecting the benefit of higher commercial, student, mortgage and auto loan growth, partially offset by lower investment portfolio income, which reflects a reduction in Federal Reserve Bank stock dividends, and an increase in debt borrowing costs.
  • Net interest margin of 2.84% improved 12 basis points, driven by improved loan yields, which resulted from initiatives to improve pricing and portfolio mix.
  • Noninterest income of $355 million declined $5 million from second quarter 2015 levels that exclude the negative impact of the reclassification of $7 million of card reward costs. Strength in service charges and fees and capital markets fees was more than offset by lower card fees due to the card reward accounting change impact in 2016, lower securities gains and lower mortgage banking servicing rights valuation.

• Noninterest expense of $827 million decreased $14 million, primarily reflecting a $40 million reduction in restructuring charges and special items. Results included a $21 million increase in salary and employee benefits largely related to a change in timing of merit increases and incentive payments as well as higher software amortization and equipment depreciation costs. Second quarter 2015 results exclude the positive impact of the reclassification of $7 million of card reward costs.
• Headcount was down 75, reflecting the benefit of our efficiency initiatives.
• Provision for credit losses of $90 million increased $13 million and reflects a $13 million decrease in net
  charge-offs as well as a $25 million reserve build tied to loan growth.
• ROTCE* of 7.3% improved 140 basis points and more than 60 basis points on an Adjusted basis.

Balance Sheet

• Average interest-earning assets increased $6.3 billion, or 5%, driven by strong loan growth.
• Average deposits increased $5.4 billion, or 6%.
• NPLs to total loans and leases ratio improved 8 basis points from 1.09% in the second quarter 2015, reflecting underlying improvement in retail nonperforming loans as well as the impact of the TDR Transaction that more than offset an increase in commercial nonperforming loans. Allowance coverage of NPLs improved by 5% to 119% from 114% in second quarter 2015.

• Net charge-offs of 25 basis points improved 8 basis points from 33 basis points in second quarter 2015 with improvement in both commercial and retail.

Update on Plan Execution

• Continued progress on initiatives to drive growth and enhance efficiency.
• Consumer Banking – New customer checking account households up ~3,000 from second quarter 2015 with growth of 3% in average deposits and 5% in service charges and fees. Solid progress on salesforce expansion in both Wealth Management and Mortgage Banking.
• Commercial Banking – Continued momentum with 11% average loan growth from second quarter 2015 with strength in Commercial Real Estate, Industry Verticals, Corporate Finance, Franchise Finance and Mid-corporate; Treasury Solutions fee income up 16% from second quarter 2015. Delivered strong results in Capital and Global Markets with improved client penetration and market share gains.
• Incremental revenue and efficiency initiatives are tracking as planned.
  • Balance sheet optimization initiatives to improve low-cost core deposit growth and shift loan portfolio mix to higher-return categories progressing well.
  • Closed TDR Transaction in third quarter 2016 at a pre-tax gain of approximately $70 million, improving underlying credit quality while providing opportunity for improved risk-adjusted returns.
  • TOP II initiatives are performing well, as we remain on track to deliver $90 - $115 million of pre-tax benefits in 2016 with expense savings fully realized and revenue initiatives well underway.
  • TOP III initiatives are projected to deliver 2017 pre-tax revenue and expense benefits of $73-90 million and $10-$15 million of tax benefits. These will help to fund continued investments to drive future growth, particularly in our fee-based businesses.
  • Expect to utilize approximately 30% to 40% of the TDR Transaction gain to fund costs associated with TOP III initiatives as well as other balance sheet optimization efforts.

* These are non-GAAP financial measures. Please see Non-GAAP Reconciliation Tables at the end of this release for an explanation of our use of non-GAAP financial measures and reconciliation of those non-GAAP financial measures to GAAP. All references to Adjusted results exclude restructuring charges and special items.
¹ Current reporting period regulatory capital ratios are preliminary.
² Capital adequacy and asset quality ratios calculated on a period-end basis, except net charge-offs.

Discussion of Results:

Second quarter 2016 net income of $243 million improved from $223 million in first quarter 2016 and $190 million in second quarter 2015. Second quarter 2015 results were reduced by a net $40 million pre-tax, or $25 million after-tax, in restructuring charges and special items, largely related to efforts to improve processes and enhance efficiencies as well as rebranding and separation from RBS. Second quarter 2015 references to Adjusted* results below exclude the impact of restructuring charges and special items.

Second quarter 2016 net income of $243 million was up $20 million, or 9%, from first quarter 2016 as 4% revenue growth exceeded growth in noninterest expense of 2%. Diluted EPS growth of 12% reflects no preferred dividend in second quarter 2016.

Compared with second quarter 2015 levels, net income improved $53 million as revenue growth of $78 million was partially offset by a $26 million increase in income tax expense and a $13 million increase in provision, reflecting a reserve build largely tied to loan growth.

Compared to Adjusted* second quarter 2015 results, net income increased $28 million, or 13%. This reflects a $78 million increase in total revenue, partially offset by a $26 million increase in noninterest expense driven by higher salary and employee benefits expense related to the timing of merit increases and incentive payments, as well as higher provision expense. Adjusted diluted earnings per share were up 15%, reflecting a 13% increase in net income available to common shareholders and a 2% reduction in fully diluted shares outstanding.

Net interest income of $923 million increased $19 million from first quarter 2016, driven by a 2% increase in average loans, partially offset by a two basis point decrease in net interest margin. Net interest margin of 2.84% in second quarter 2016 reflects the benefit of improved loan yields and portfolio mix, which was more than offset by a reduction in investment portfolio yield largely tied to lower long-term rates as well as higher borrowing costs related to senior bank debt issuance. Deposit costs remained relatively stable, reflecting continued pricing discipline.

Compared to second quarter 2015, net interest income increased $83 million, or 10%, largely reflecting 7% average loan growth, 6% average deposit growth and a 12 basis point improvement in net interest margin. Results were driven by improved loan yields given continued pricing and portfolio optimization initiatives and higher short-term interest rates, partially offset by a reduction in investment portfolio yield driven by lower long-term rates as well as increased borrowing costs related to senior bank debt issuance. Deposit costs were stable with second quarter 2015, with continued pricing discipline despite higher rates.

¹ Other income includes bank owned life insurance and other income.

Noninterest income of $355 million increased $25 million, or 8%, from first quarter 2016, largely driven by higher capital markets fees, mortgage banking fees and service charges and fees, partially offset by a $5 million reduction in securities gains. Capital markets fees increased $13 million, reflecting continued broadening of our capabilities and cross sell, as well as a strong increase in deal volume from lower first quarter 2016 market levels. Mortgage banking fees increased $7 million, reflecting higher application and origination volumes and improved sale volumes and spreads, as well as an improved mortgage servicing rights (“MSR”) valuation. Service charges and fees increased $6 million, largely reflecting the benefit of both higher volume from seasonally lower first quarter levels and improved pricing. Results also reflect modest growth in card fees and trust and investment services fees and other income. Other income included strong interest rate product revenue, up $7 million, largely offset by an other-than-temporary-impairment (“OTTI”) charge of $6 million tied to a new model implementation. Securities gains decreased by $5 million.

Noninterest income decreased $5 million from second quarter 2015 levels that exclude the negative impact of $7 million of card reward costs. Service charges and fees increased $11 million, driven by both improved pricing and volume. Capital markets fees increased $5 million to a record quarterly high, reflecting continued broadening of our capabilities and cross sell, as well as strong market deal volume. Mortgage banking income declined $5 million from second quarter 2015 levels, largely reflecting the significant second quarter 2015 MSR valuation gain. Trust and investment services fees decreased $3 million given the changing mix of product sales.

Noninterest expense of $827 million increased $16 million from first quarter 2016, driven by higher salaries and employee benefits, largely related to a change in timing of merit increases and incentive payments, and other operating expense driven by higher regulatory, fraud and insurance costs. Results also reflect lower outside services expense, driven by our ongoing efficiency initiatives.

Compared with second quarter 2015, noninterest expense decreased $14 million, or 2%, driven by a $40 million decrease in restructuring charges and special items. On an Adjusted* basis, results reflect an increase in salaries and employee benefits, largely reflecting a change in the timing of merit increases and incentive payments that drove higher payroll taxes and retirement plan contributions, as well as increased software amortization, partially offset by the card reward accounting change impact.

The effective tax rate improved to 32.6% in second quarter 2016 compared to 32.9% in first quarter 2016 and 32.7% in second quarter 2015.

¹ Represents period end unless otherwise noted.
² Includes loans held for sale.
³ Current reporting period regulatory capital ratios are preliminary. Basel III ratios assume that certain definitions impacting qualifying Basel III capital will phase in through 2019. Ratios also reflect the required U.S. Standardized methodology for calculating RWAs, effective January 1, 2015.

Total assets of $145.2 billion increased $5.1 billion, or 4%, from March 31, 2016, driven by a $2.2 billion increase in the investment portfolio, largely cash balances, which were managed temporarily higher in connection with the U.K. European Union exit vote (“Brexit”). Results also reflect a $1.6 billion increase in commercial loans and leases and a $975 million increase in retail loans driven by growth in residential mortgages and student, offset in part by a reduction in home equity balances. Compared with June 30, 2015, total assets increased $7.9 billion, or 6%, primarily reflecting a $7.0 billion increase in loans and leases and a $576 million increase in investment portfolio assets, largely interest-bearing cash positions.

Average interest-earning assets of $129.5 billion in second quarter 2016 increased $3.3 billion, or 3%, from the prior quarter, driven by a $2.1 billion increase in commercial loans and leases, a $324 million increase in retail loans, a $459 million increase in the investment portfolio and a $453 million increase in loans held for sale driven by the impact of the TDR Transaction.

Compared to second quarter 2015, average interest-earning assets increased $6.3 billion, or 5%, driven by commercial loan growth of $4.4 billion, retail loan growth of $2.6 billion and a $354 million increase in loans held for sale, partially offset by a $1.1 billion decrease in investments and interest-bearing cash.

Investments and interest-bearing deposits of $27.8 billion as of June 30, 2016 increased $2.2 billion, or 9%, from March 31, 2016, largely reflecting an increase in investments, mainly cash, which were managed temporarily higher in connection with Brexit. Compared with June 30, 2015, investments and interest-bearing deposits increased $576 million, or 2%, reflecting the impact of our Brexit planning, partially offset by modest third quarter 2015 balance sheet deleveraging. At the end of second quarter 2016, the average effective duration of the securities portfolio decreased to 2.4 years, compared with 2.9 years at March 31, 2016 and 3.7 years at June 30, 2015, largely reflecting continued declines in longer-term interest rates, which increased estimated prepayment speeds.

Period-end loans and leases of $103.6 billion at June 30, 2016 increased $2.6 billion from $101.0 billion at March 31, 2016 and increased $7.0 billion from $96.5 billion at June 30, 2015. The linked-quarter change was driven by a $1.6 billion increase in commercial loans and leases and a $975 million increase in retail loans. Compared with June 30, 2015, period-end loans and leases increased $7.0 billion, reflecting a $4.5 billion increase in commercial loans and leases and a $2.5 billion increase in retail loans.

Average loans and leases of $102.7 billion increased $2.4 billion from first quarter 2016, driven by a $2.1 billion increase in commercial and $324 million increase in retail loans. Commercial loan and lease growth reflects strength in Mid-corporate and Industry Verticals, Commercial Real Estate, Corporate Finance and Franchise Finance. Retail loan growth was primarily driven by student, other unsecured retail loans and mortgage, partially offset by lower home equity outstandings, including continued runoff in the non-core portfolio.

Compared with second quarter 2015, average loans and leases increased $7.1 billion, or 7%, reflecting a $4.4 billion increase in commercial and a $2.6 billion increase in retail. Commercial loan growth was driven by strength in Commercial Real Estate, Mid-corporate and Industry Verticals, Corporate Finance and Franchise Finance, partially offset by lower Middle Market loan balances. Retail loan growth was driven by strength in student, residential mortgages, auto and other unsecured retail loans, partially offset by lower home equity balances.

Period-end total deposits at June 30, 2016 of $106.3 billion increased $3.7 billion from March 31, 2016 as growth in money market, checking with interest and term deposits was partially offset by a decrease in demand deposits. Compared with

June 30, 2015, period-end total deposits increased $5.6 billion, or 6%, driven by growth in checking with interest, money market, savings and demand deposits, partially offset by a reduction in term deposits.

Second quarter 2016 average deposits of $104.0 billion increased $2.0 billion from first quarter 2016, driven by growth in checking with interest, term deposits, savings and demand deposits. Compared with second quarter 2015, average deposits increased $5.4 billion driven by growth in checking with interest, money market, savings and demand deposits.

Total borrowed funds of $15.3 billion at June 30, 2016 increased $1.2 billion from March 31, 2016, largely reflecting the issuance of $1.0 billion of senior unsecured bank debt and shift from short-term to long-term Federal Home Loan Bank (“FHLB”) advances. Compared with June 30, 2015, total borrowed funds increased $861 million, largely reflecting the issuance of senior unsecured bank debt and an increase in long-term FHLB advances, which more than offset continued reductions in our reliance on short-term borrowings.

Average borrowed funds of $15.0 billion increased $1.2 billion from first quarter 2016 and $266 million from second quarter 2015. On May 13, 2016, we issued $1.0 billion in five-year 2.550% senior unsecured bank notes.

¹ Current reporting-period regulatory capital ratios are preliminary.
² Basel III ratios assume that certain definitions impacting qualifying Basel III capital will phase in through 2019. Ratios also reflect the required U.S. Standardized methodology for calculating RWAs, effective January 1, 2015.

On June 30, 2016, our Basel III capital ratios on a transitional basis remained well in excess of applicable regulatory requirements, with a CET1 capital ratio of 11.5% and a total capital ratio of 14.9%. Our capital ratios continue to reflect progress against our objective of realigning our capital profile to be more consistent with that of peer regional banks, while maintaining a strong capital base to support our growth aspirations, strategy and risk appetite. The second quarter 2016 dividend per common share increased 20% to $0.12 from $0.10 in first quarter 2016.

On June 29, 2016, Citizens announced that the Federal Reserve had no objection to its 2016 Capital Plan (the “Plan”) submitted in connection with the Federal Reserve’s 2016 Comprehensive Capital Analysis and Review. The Plan includes the repurchase of up to $690 million of Citizens’ outstanding common stock beginning in third quarter 2016 through second quarter 2017. The Plan also provides for proposed quarterly dividends of $0.12 per share through the end of 2016 and the potential to raise the quarterly dividend to $0.14 per share in 2017. Proposed capital actions are subject to consideration and approval by CFG’s Board of Directors.

Credit quality metrics improved during the quarter, reflecting a reduction in net charge-offs and improving commercial and retail credit quality. Nonperforming loans and leases of $1.0 billion at June 30, 2016 decreased $35 million from March 31, 2016, reflecting improvement in commercial and retail categories. The nonperforming loans and leases to total loans and leases ratio of 1.01% at June 30, 2016 improved 6 basis points from 1.07% at March 31, 2016 and 8 basis points from 1.09% at June 30, 2015. Compared with second quarter 2015, nonperforming loans and leases decreased $6 million.

Net charge-offs of $65 million, or 25 basis points, of total average loans and leases in second quarter 2016 decreased $18 million from $83 million, or 33 basis points, in first quarter 2016. Retail product net charge-offs of $63 million were $11 million lower than first quarter 2016 levels. Commercial net charge-offs were $2 million in second quarter 2016 compared with commercial net charge-offs of $9 million in first quarter 2016.

Allowance for loan and lease losses of $1.2 billion increased $22 million, or 2%, versus first quarter 2016 and $45 million, or 4%, from second quarter 2015, largely reflecting continued loan growth.

Allowance for loan and lease losses to total loans and leases was 1.20% as of June 30, 2016, relatively stable compared with 1.21% as of March 31, 2016 and 1.24% as of June 30, 2015. The allowance for loan and lease losses to nonperforming loans and leases ratio increased to 119% as of June 30, 2016 from 113% as of March 31, 2016 and 114% as of June 30, 2015.

Additional Segment Detail:

¹ Includes held for sale.
² Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level of common equity tier 1 and then allocate that approximation to the segments based on economic capital.

Consumer Banking net income of $90 million in second quarter 2016 increased $19 million, or 27%, compared to first quarter 2016, reflecting a $32 million increase in total revenue and lower provision for credit losses, partially offset by higher noninterest expense. Net interest income increased $21 million, or 4%, from first quarter 2016, driven by a $538 million increase in average loans led by higher student and mortgage loan balances and improved loan and deposit spreads. Noninterest income increased $11 million, or 5%, from first quarter 2016, driven by higher mortgage banking fees, reflecting higher application and origination volumes and improved sale gains and spreads, as well as improved MSR valuations and higher service charges and fees. Results also reflect improved card fees and trust and investment services fees. Noninterest expense increased $16 million, or 3%, from first quarter 2016, reflecting higher salary and benefits expense related to timing of merit increases and incentive payments, higher regulatory, fraud and insurance costs and higher outside services expense. Provision for credit losses of $49 million decreased $14 million from first quarter 2016, driven by lower net charge-offs in auto and home equity.

Compared with second quarter 2015, net income increased $24 million, or 36%, as revenue growth and lower provision for credit losses was partially offset by an increase in noninterest expense. Net interest income increased $58 million, or 11%, driven by the benefit of a $3.3 billion increase in average loans, reflecting growth in student, mortgage, auto and consumer unsecured loans and improved deposit spreads. Noninterest income decreased $11 million, or 5%, as an increase in service charges and fees was more than offset by a reduction in card fees tied to the card reward accounting change. Results also reflect lower mortgage banking fees, which declined $5 million from second quarter 2015 levels, as the benefit of higher application volumes and sale gains and spreads was more than offset by a reduction in MSR valuations from higher first quarter 2015 levels, reflecting the reduction in long-term rates. Noninterest expense increased $19 million, or 3%, driven by higher salaries and benefits largely related to a change in the timing of merit increases and incentive payments. Results also reflect an increase in outside services expense, largely offset by the card reward accounting change impact. Provision for credit losses declined $11 million from second quarter 2015, driven by lower net charge-offs in home equity.

¹ Includes held for sale.
² Operating segments are allocated capital on a risk-adjusted basis considering economic and regulatory capital requirements. We approximate that regulatory capital is equivalent to a sustainable target level for common equity tier 1 and then allocate that approximation to the segments based on economic capital.

Commercial Banking net income of $164 million in second quarter 2016 increased $31 million, or 23%, from first quarter 2016, reflecting a $37 million increase in total revenues and lower provision expense. Net interest income of $314 million increased $14 million compared to first quarter 2016, driven by loan growth and higher interest recoveries. Average loans and leases increased $2.1 billion led by Mid-corporate and Industry Verticals, Corporate Finance and Commercial Real Estate. Noninterest income increased $23 million, driven by strength in capital markets and interest rate products. Noninterest expense was flat as higher salaries and employee benefits, which included a change in timing of merit and incentive payments, and higher insurance costs were offset by lower outside services expense. Provision for credit losses decreased $10 million from first quarter levels, reflecting lower net charge-offs.

Compared to second quarter 2015, net income increased $29 million, or 21%, as a $42 million increase in total revenue and loan recoveries was partially offset by a $5 million increase in noninterest expense. Net interest income increased $28 million, or 10%, from second quarter 2015, reflecting the benefit of a $4.6 billion increase in average loans and leases, improved deposit spreads and a $2.4 billion increase in average deposits. Average loan and lease growth was driven by strength in Commercial Real Estate, Mid-corporate and Industry Verticals, Corporate Finance and Franchise Finance. Noninterest income increased $14 million from second quarter 2015 levels, reflecting strength in service charges and fees, interest rate products and capital markets fees. Noninterest expense increased $5 million from second quarter 2015 as increased salaries and employee benefits related to the timing of merit increases and incentive payments and higher insurance costs were partially offset by lower outside services. Provision for credit losses decreased $8 million from second quarter 2015 levels, reflecting lower charge-offs.