After "aggressively" cutting deposit costs across product types in the third quarter, Citizens Financial Group Inc. expects to see a larger decline in the fourth quarter as pricing catches up with drops in benchmark rates.
"There's just a natural operational lag" after the Federal Reserve cuts rates, Vice Chairman and CFO John Woods said during a conference call on third-quarter results.
"As we get farther away from" the Fed's most recent cut in September, its impact "gets pushed through operationally and you're going to see deposit betas increase" from the third quarter into the fourth quarter, Woods said. "Therefore, we expect deposit costs to actually decline by a larger amount than they did this quarter."
The Providence, R.I.-based bank reported that its cost of deposits fell five basis points from the second quarter to 0.95% in the third quarter and that its overall cost of funds fell eight basis points to 1.14%.
Those figures are still relatively high for the industry. On the call, executives acknowledged that Citizens' betas had been higher than some peers during the most recent rate tightening cycle.
"That's starting to retrace itself," Woods said.
"We've been outperforming now through the cut cycle on the deposit side," Chairman, President and CEO Bruce Van Saun added.
Overall, Citizens' net interest margin fell 10 basis points from the previous quarter to 3.10% as reduced asset yields and bond premium amortization outpaced declining funding costs. The bank projected a lower level of net income margin compression in the fourth quarter based on its expectation for further declines in deposit costs, lower premium amortization and benefits from hedges.
It also projected that loan growth would drive relatively stable net interest income.